two questions. Fast Please! thank you A gold mining project has an initial cost
ID: 2507109 • Letter: T
Question
two questions.
Fast Please! thank you
A gold mining project has an initial cost of $80,000 and an estimated salvage value after 15 years of $68,000. Estimated average annual revenues are $23,000. Estimated average annual costs are $16,000. Assuming that annual revenue and cost are uniform, what is the prospective rate of return? A new project requires development costs of $60 million at the time zero and $100 million at the end of year 2 with incomes of $40 million per year at the end of years 1, 2 and 3 and incomes of $85 million per year at the end of years through years 4 through 10 with zero salvage value predicted at the end of year 10. What is the rate of return for this project?Explanation / Answer
Operationg Profit = revenue- cost = 23000-16000 = $7000
0 = -80000+7000PVIFA(IRR,15)+68000/(1+IRR)^15
we have to enter cash flow and solve for IRR in calculator
IRR = 8.21%
2.
0 = -60+40/(1+IRR)-(60/(1+IRR)^2)+(40/(1+IRR)^3)+(85/(1+IRR)^4)+(85/(1+IRR)^5)+(85/(1+IRR)^6)+(85/(1+IRR)^7)+(85/(1+IRR)^8)+(85/(1+IRR)^9)+(85/(1+IRR)^10)
IRR = 49.61%
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