Question

Windhoek Mines Lidl of Namibia is contemplating the purchase of equipment to exploda mineral depot on and 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 Cost of new equament and timbers Working capital required Annual net cash receipts Cost to construct new roads in three years Salvage value of equipment in four years $ 320000 S 195.000 $ 130.000 S59.000 $ 4,000 Receipts from sales olore, 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 investment elsewhere. The company's required rate of return is 18% Click here to view Exhibit 118-1 and Exhibit 118-2 to determine the appropriate discount factors) using tables Required: a. Determine the nel present value of the proposed mining project. Any cash outhowe should be Indicated by a minus algn. Use the appropriate table to determine the discount factore).) Now 1 2 Purchase of equipment Working capital investment Annual net cash receipts Road construction Working capital released Salvage value of equipment Total cash flows Discount factor (18%) Preson value Net present value s S 0S0S0S IS OS 이 5 0 5 0

Answer 1

a)				Now	1	2	3	4
	purchase of Equipment			-320,000
	working capital investment			-195,000
	annual net cash receipt				130,000	130,000	130,000	130,000
	Road construction						-59,000
	working capital released							195,000
	salvage value of equipment							84,000
	total cash flows			-515,000	130000	130000	71000	409000
	discount factor (18%)			1	0.847	0.718	0.609	0.516
	present value			-515000	110110	93340	43239	211044
	net present value			-57,267
	(note I have used PV of $1 table figures at 18% rounded to three decimal places incase
	the figures given is your question table are upto five figures please use that one to
	get exact answer)
b)	N0

a)				Now	1	2	3	4
	purchase of Equipment			-270,000
	working capital investment			-85,000
	annual net cash receipt				124,000	124,000	124,000	124,000
	overhaul of equipment					-8,000
	working capital released							85,000
	salvage value of equipment							12,500
	total cash flows			-355,000	124000	116000	124000	221500
	discount factor (18%)			1	0.847	0.718	0.609	0.516
	present value			-355000	105028	83288	75516	114294	23126
	net present value			23,126
	(take the discount factor as given in your question to get exact answer)
	Net present value		$23,126
		annaul cash receipts
		sales revenues			410,000
	less:	variable expenses			-200,000
		fixed out of pocket operating			-86,000