20.
A diamond mine is expected to produce regular annual cash flows of $1 million for 8 years with the first regular cash flow expected in 1 year from today. In addition to the regular cash flows of $1,000,000, the diamond mine is also expected to produce an extra cash flow of $3,000,000 in 8 years from today. The cost of capital for the mine is 12 percent. What is the value of the mine?
Present value=Cash flows*Present value of discounting factor(rate%,time period)
1,000,000/1.12+1,000,000/1.12^2+............+1,000,000/1.12^8+3,000,000/1.12^8
which is equal to
=$6,179,289.45(Approx).(or $6.18 million approx).
20. A diamond mine is expected to produce regular annual cash flows of $1 million for...
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