am. 211. Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land towhich the company has mineral rights. An engineering and cost analysis has been made, and it is expected that thefollowing cash flows would be associated with opening and operating a mine in the area:Cost of new equipment and timbers$ 460,000Working capital required$ 160,000Annual net cash receipts$ 175,000*Footnote asteriskCost to construct new roads in three years $ 52,000Salvage value of equipment in four years $77,000*Footnote asteriskReceipts 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 releasedfor reinvestment elsewhere. The company's required rate of return is 18%.Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables.Required:1. What is the net present value of the proposed mining project?2. Should the project be accepted?

NPV) is a frequently used tool in business decision-making to evaluate the economic viability of…

Windhoek Mines, Limited, 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 $ 460,000 Working capital required $ 160,000

Windhoek Mines, Limited, 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 $ 460,000 Working capital required $ 160,000

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows

Section: Chapter Questions

Problem 19P

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Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. The company estimated the following cash flows related to 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. $ 330,000 $ 200,000 $ 135,000* $ 60,000 $ 85,000 *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. The company's required rate of return is 18%. Click here to view Exhibit 14B-1 and Exhibit 14B-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?
Net Present Value Analysis 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: The mineral deposit would be exhausted after four years of mining. At that point, the working capital would he released for reinvestment elsewhere. The company’s required rate of return is 20%. Required: What is the net present value of the proposed mining project? Should the project be accepted? Explain.
Integrative: Complete investment decision With the market price of gold at C$1,562.50 per ounce (C$ stands for Canadian dollars), Maritime Resources Corp., a Canadian mining firm, would like to assess the financial feasibility of reopening an old gold mine that had ceased operations in the past due to low gold prices. Reopening the mine would require an up-front capital expenditure of C$68.4 million and annual operating expenses of C$19.43 million. Maritime expects that over a 5-year operating life it can recover 176,000 ounces of gold from the mine and that the project will have no terminal value. Maritime uses straight-line depreciation, has a 21.06% corporate tax rate, and has a(n) 11.2% cost of capital. a. Calculate the operating cash flows for the gold mine project. b. Depict on a timeline the net cash flows for the gold mine project. c. Calculate the internal rate of return (IRR) for the gold mine project. d. Calculate the net present value (NPV) for the gold mine project. e.…
Integrative: Complete investment decision With the market price of gold at C$1,562.50 per ounce (C$ stands for Canadian dollars), Maritime Resources Corp., a Canadian mining firm, would like to assess the financial feasibility of reopening an old gold mine that had ceased operations in the past due to low gold prices. Reopening the mine would require an up-front capital expenditure of C$68.4 million and annual operating expenses of C$19.43 million. Maritime expects that over a 5-year operating life it can recover 176,000 ounces of gold from the mine and that the project will have no terminal value. Maritime uses straight-line depreciation, has a 21.06% corporate tax rate, and has a(n) 11.2% cost of capital. a. Calculate the operating cash flows for the gold mine project. b. Depict on a timeline the net cash flows for the gold mine project. c. Calculate the internal rate of return (IRR) for the gold mine project.
Integrative: Complete investment decision With the market price of gold at CS1,562.50 per ounce (C$ stands for Canadian dollars), Maritime Resources Corp., a Canadian mining firm, would like to assess the financial feasibility of reopening an old gold mine that had ceased operations in the past due to low gold prices. Reopening the mine would require an up-front capital expenditure of C$68.1 million and annual operating expenses of CS19.38 million. Maritime expects that over a 5-year operating life it can recover 173,000 ounces of gold from the mine and that the project will have no terminal value. Maritime uses straight-line depreciation, has a 21.01% corporate tax rate, and has a(n) 10.9% cost of capital. a. Calculate the operating cash flows for the gold mine project. b. Depict on a timeline the net cash flows for the gold mine project. c. Calculate the internal rate of return (IRR) for the gold mine project. d. Calculate the net present value (NPV) for the gold mine project. e.…
Integrative: Complete investment decision With the market price of gold at C$1,562.50 per ounce (C$ stands for Canadian dollars), Maritime Resources Corp., a Canadian mining firm, would like to assess the financial feasibility of reopening an old gold mine that had ceased operations in the past due to low gold prices. Reopening the mine would require an up-front capital expenditure of C$68.3 million and annual operating expenses of C$19.37 million. Maritime expects that over a five-year operating life it can recover 175,000 ounces of gold from the mine and that the project will have no terminal cash flow. Maritime uses straight-line depreciation, has a 21.03% corporate tax rate, and has a(n) 11.2% cost of capital. a. Calculate the periodic cash flows for the gold mine project. b. Depict on a timeline the net cash flows for the gold mine project. c. Calculate the internal rate of return (IRR) for the gold mine project. d. Calculate the net present value (NPV) for the gold mine project.…
Integrative: Complete investment decision With the market price of gold at C$1,562.50 per ounce (CS stands for Canadian dollars), Maritime Resources Corp., a Canadian mining firm, would like to assess the financial feasibility of reopening an old gold mine that had ceased operations in the past due to low gold prices. Reopening the mine would require an up-front capital expenditure of C$67.7 million and annual operating expenses of C$19.44 million Maritime expects that over a five-year operating life it can recover 176,000 ounces of gold from the mine and that the project will have no terminal cash flow. Maritime uses straight-line depreciation, has a 21.07% corporate tax rate, and has a(n) 11.1% cost of capital. a. Calculate the periodic cash flows for the gold mine project. b. Depict on a timeline the net cash flows for the gold mine project. c. Calculate the internal rate of return (IRR) for the gold mine project. d. Calculate the net present value (NPV) for the gold mine project.…
The L-S Mining Company is planning to open a new strip mine in western Pennsylvania. The net investment required to open the mine is $9 million. Net cash flows are expected to be +$17 million at the end of year 1 and +$11 million at the end of year 2. At the end of year 3, L-S will have a net cash outflow of $21 million to cover the cost of closing the mine and reclaiming the land. Use Table II to answer the questions. Calculate the net present value of the strip mine if the cost of capital is 3, 9, 11, 77, 87, and 92 percent. Enter your answers in millions. For example, an answer of $1.20 million should be entered as 1.20, not 1,200,000. Round your answers to two decimal places. k NPV 3% $ million 9% $ million 11% $ million 77% $ million 87% $ million 92% $ million What is unique about this project? The NPV is negative at discount rates between % and %, positive from % to % and negative beyond %. Should the project be accepted if L-S's cost of…
Perit Industries has $155,000 to invest in one of the following two projects: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $ 155,000 $ 25,000 $ 8,600 6 1. Net present value project A 2. Net present value project B 3. Which investment alternative (if either) would you recommend that the company accept? X Answer is complete but not entirely correct. Project B $0 $ 155,000 $ 40,000 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 14%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. Note: Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount. 2. Compute the net present value of Project B. $(53,971) 70,527 X Project B $0…
KRP Company is considering a project that requires a machine. Cost of the machine is $250,000. Initial investment in net working capital is $55,500. Company spent amount of $4,200 to do analysis on this project to know the market status and paid $5,300 to get some information which is required to work on this project. What is the cash flow in Year 0 for this project? а. $250,000 b. $55,500 с. $315,000 d. $305,500
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The management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: Year Cash Outflow Cash Inflow Cumulative Years Remaining Investment 1 $1,900,000 $100,000 1 $ 2 550,000 200,000 2 3 360,000 3 4 480,000 4 5 510,000 5 6 600,000 6 7 590,000 8 300,000 9 250,000 10 250,000 Complete the missing information. For the payback period, round to the nearest hundredth, two decimal places.