Question
12.) An electric company is considering a proposal to supply power to a small town. Initial capital investment is P18M plus another P25M spread out
12.) An electric company is considering a proposal to supply power to a small town. Initial capital investment is P18M plus another P25M spread out evenly over a five year period. The project will last for 15years and income generated is expected to be P7.5M per year starting at the end of the fourth year. Determine the feasibility of the proposal using the ERR method with a 14% MARR and a 15% reinvestment rate. (Ans. Proposal is not feasible, 13%)
13.) A mining company using a 17% MARR is evaluating a new site for nickel mining. The site acquisition and equipment expenses are expected to cost P485M. Net annual receipts are estimated at P95M for the next 12 years after which the mine will be depleted. Clean up and biodiversity restoration is anticipated to cost P18M per year for the succeeding three years. Assess this venture using the ERR method. (Ans. Venture is not recommended, 16.72%)
** ERR = External Rate of Return
** NO EXCEL Please
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