ZCCM-IH is a major supplier of iron ore to the steel industry and the company is the 4thlargest supplier of seabome iron ore in the world. The company exports over 34 milliontonnes per year. The company's reserves amount to over a billion tonnes. KonkolaCopper Mine (Konkola) represented a major expansion mining project for ZCCM-IH.ZCCM-IH is considering a new project with an expected life of three years and is expectedto result in an increase in sales revenue of K20 billion in the first year, K30 bilion in thesecond year and K10 billion in the third year. Operating costs will amount to 70% of salesrevenue and the company is required to make an investment in working capital of K6billion at the beginning of the project, which is recoverable at the end of the life of theproject. The cost of the project is K18 billion and the residual value at the end of threeyears is K11 billion. The required rate of return is 14%.Assuming no taxation.A. Calculate ZCCM-IH project's NPV?B. Using IRR as another method for project evaluation, calculate the IRR that ZCCM-IHwill obtain under this project?C. Should ZCCIM-IH invest in this project?[back your justification by using yourcalculations in (a) and (b) above].

Net present value (NPV) is used to determine the present value of all future cash flows. Net present…

Answered: ZCCM-IH is a major supplier of iron ore…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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am. 137.
On January 2, 2021, an Australian Copper Exploration Company was investigating the feasibility of two mutually exclusive investment projects. The first prospective investment involved a strip (open-cut) mining operation in South Wales. The second investment also involved the extraction of copper, but this expenditure would be an underground site in Queensland. Preliminary drilling, sampling and analysis of both sites and consultation with geologists, costing the company $3600,000, suggested that both sites have similar copper reserves and useful lives. The copper extraction process for the two types of mines and the equipment required for operation of the mines are very different, however, with the underground mining operation expected to be more complex and difficult. The process of drilling underground also increases the dangers faced by employees, although it is more environmentally friendly than the pollution and soil erosion caused by open-cut mining operations. For the past…
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On January 2, 2021, an Australian Copper Exploration Company was investigating the feasibility of two mutually exclusive investment projects. The first prospective investment involved a strip (open-cut) mining operation in South Wales. The second investment also involved the extraction of copper, but this expenditure would be an underground site in Queensland. Preliminary drilling, sampling and analysis of both sites and consultation with geologists, costing the company $3600,000, suggested that both sites have similar copper reserves and useful lives. The copper extraction process for the two types of mines and the equipment required for operation of the mines are very different, however, with the underground mining operation expected to be more complex and difficult. The process of drilling underground also increases the dangers faced by employees, although it is more environmentally friendly than the pollution and soil erosion caused by open-cut mining operations. For the past…
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