Project instructions help 3· 10.00 points Hilly Mines, Inc., owns the mining rig

Question

Project instructions help 3· 10.00 points Hilly Mines, Inc., owns the mining rights to a large tract of land in a mountainous area. The tract contains a mineral deposit that the company believes might be commercially attractive to mine and sell. 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: 910.000 $365,000 s255,000 72.000 130,000 Cost ofl road repairs in five years Salvage value of equipment in six years Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after six years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company's required rate of return is 17%. (Ignore income taxes.) Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. Required: Determine the net present value of the proposed mining project. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answer to the nearest whole dollar.) b. Should the project be accepted? Referencs Book & Resources Difficulty: 1 Easy Objective 11-02 Evaluate the acceptability of project using the net present vaus metod

Explanation / Answer

interest rate 17.00% Year Capital investment Working capital Road Repair Operating cash flows Net Cash flows PV fatctor Amount 0         (910,000) (255,000)                -   (1,165,000) 1.000 (1,165,000) 1    365,000         365,000 0.855         311,966 2    365,000         365,000 0.731         266,637 3    365,000         365,000 0.624         227,895 4    365,000         365,000 0.534         194,782 5     (72,000)    365,000         293,000 0.456         133,641 6           130,000    365,000         495,000 0.390         192,970 Total         162,891 So we can see the NPV of the project is 162,891 Solution 2 Since the NPV is positive, it is suggested to take up the project

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