Chapter 12, Problem 16P

Net Present Value Analysis
Windhoek Mines, Ltd., of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, d it is expected that the following cash flows would be associated with opening and operating a mine in the area:

The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment. The company’s required rate of return is 20%.
Required:
What is the net present value of the proposed mining project? Should the project be accepted? Explain.