Windhoek Mines, Ltd., of Namibia, is contemplating the purchase of equipment to
ID: 2805287 • Letter: W
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 three years Salvage value of equipment in four years $ 370,000 115,000 $130,000* $ 43,000 $ 68,000 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. I he 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. 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 factor(s).)Explanation / Answer
a
now
1
2
3
4
purchase of equipment
-370000
working capital investment
-115000
annual net cash receipt
130000
130000
130000
130000
road construction
-43000
working capital released
115000
salvage value of equipment
total cash flow
-485000
130000
130000
87000
245000
discount factor 18%
1
0.847457627
0.718184
0.608630873
0.515789
present value = total cash inflow*discount factor
-485000
110169.4915
93363.98
52950.88592
126368.3
net present value= sum of present value of cash flow
-102147
b-
no as its npv is negative
a
now
1
2
3
4
purchase of equipment
-370000
working capital investment
-115000
annual net cash receipt
130000
130000
130000
130000
road construction
-43000
working capital released
115000
salvage value of equipment
total cash flow
-485000
130000
130000
87000
245000
discount factor 18%
1
0.847457627
0.718184
0.608630873
0.515789
present value = total cash inflow*discount factor
-485000
110169.4915
93363.98
52950.88592
126368.3
net present value= sum of present value of cash flow
-102147
b-
no as its npv is negative
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.