Windhoek Mines, Ltd, of Namibia, is contemplating the purchase of equipment to e

Question

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, 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 year three Salvage value of equipment in four years $ 340,00e 205,0e0 $ 148,000* 61,00e 86,000 Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company's required rate of return is 18% Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required a. What is the net present value of the proposed mining project? b. Should the project be accepted? Complete this question by entering your answers in the tabs below Required A Required B What is the net present value of the proposed mining project? (Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount.) present value

Explanation / Answer

a) Inintial Cash Flows Inintial Cash Flows Cost of the new Equipment       340,000 Salvage Value        86,000 Working Capital Required       205,000 Working Capital Realisation       205,000       545,000       291,000 Intermidiate Cash Flows Year            -                                   1                2                3                4 Total Initial Cash Flows (545,000)                               -                -                -                -   (545,000) Annual Net Cash Receipts                        140,000       140,000       140,000       140,000    560,000 Less : Cost to the new roads        61,000     61,000 Add : Terminal Cash Flows       291,000    291,000 (545,000)                        140,000       140,000        79,000       431,000    245,000 PVCF @ 18%             1                           0.848          0.718          0.609          0.516 (545,000)                        118,650       100,548        48,079       222,310    (55,413) Net Preset Value       (55,413) Note There no Tax Rate Avaialable , Hence Tax Shield on Depreciatian exp not considered   b) Being the Net preset value is Negative , hence the project not vaible. Should not accept

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