Homework Answers
Pls see table below for calculations, without considering the purchase price of the quarry.
The savings from buying the quarry on the unit price of aggregate is $5.8 - 4.3 = $1.5 per m3. Hence annual savings are: $1.5 * 50,000 = $75,000.
| Total CF / (1.1^Time) | ||||
| Time | Savings on aggregate | Salvage value of quarry | Total CF | PV (Total CF) |
| 1 | 75000 | 75000 | 68181.818 | |
| 2 | 75000 | 75000 | 61983.471 | |
| 3 | 75000 | 75000 | 56348.61 | |
| 4 | 75000 | 75000 | 51226.009 | |
| 5 | 75000 | 200000 | 275000 | 170753.36 |
| Total | 408493.27 |
An amount of $408493.27 can be paid for the quarry.
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