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 $ 300,00 $ 185, eee $ 120,00* $ 57,00 $ 82,800 *Receipts from sales of ore, less out-of-pocket costs for salarles, 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.) Net present value Required A Required B >

Answer 1

aj completation of net present value Cupul NPV = L present value of cash inflows] I initial investm = $ 120,000 XPVAR@ 181. for four years + $ 82000 XP vf at the end of 4th. year + $ 1.85000XDVF at the end of 4th yearow $57000 XpVf at the end. of 3rd year - $ 3,00,000 - $1850ool = $ 120 poox 2.6901 +$ 82000 X 0'5158 + $ (8So60 X 0:515 Q - S5oOoXO'686 - $ 3,00,000 - $ 185000) Net present Vallee = - $ 59160 poro should the project be accepted ? "No since Now is negative