3.00 points Windhook Mines, Ltd., of Namibia, is contemplating the purchase of e

Question

3.00 points Windhook 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, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers Working capital required Annual net cash receipts Cost to construct new roads in three years Salvage value of equipment in four years 320,000 195,000 130,000 59,000 84,000 Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth it would be exhausted after four years of mining. At that point, the working capital would The mineral deposi be released for reinvestment elsewhere. The company's required rate of return is 18%. Cick hore to view Exhibit 118-1 and Exhibit 118-2, to determine the appropriate discount factorfe) using tables. Required: a Determine the net present value of the proposed mining project. (Any cash outflows should be indicated by a minus sign. Use the appropriate table to determine the discount factorís).) ow Purchase of equipment Working capital investment Annual net cash receipts Road construction Working capital released Salvage value of equipment Total cash flows Discount factor (18%) Present value

Explanation / Answer

a) Now 1 2 3 4 purchase of Equipment -320,000 working capital investment -195,000 annual net cash receipt 130,000 130,000 130,000 130,000 Road construction -59,000 working capital released 195,000 salvage value of equipment 84,000 total cash flows -515,000 130000 130000 71000 409000 discount factor (18%) 1 0.847 0.718 0.609 0.516 present value -515000 110110 93340 43239 211044 net present value -57,267 (note I have used PV of $1 table figures at 18% rounded to three decimal places incase the figures given is your question table are upto five figures please use that one to get exact answer) b) N0

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