Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Alpha Coal, Limited, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An

image text in transcribedimage text in transcribed

Alpha Coal, Limited, 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 Working capital required Annual net cash receipts Cost to construct new roads in three years Salvage value of equipment in four years $ 370,000 $ 115,000 $ 130,000* $ 43,000 $ 68,000 *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, taxes, 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%. Required: a. What is the net present value of the proposed mining project? b. Should the project be accepted? Complete this question by entering your answers in the tabs below. Required A Required B What is the net present value of the proposed mining project? Note: Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount. Net present value Check my work Alpha Coal, Limited, 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 Working capital required Annual net cash receipts Cost to construct new roads in three years Salvage value of equipment in four years $ 370,000 $ 115,000 $ 130,000* $ 43,000 $ 68,000 *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, taxes, 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%. Required: a. What is the net present value of the proposed mining project? b. Should the project be accepted? Complete this question by entering your answers in the tabs below. Required A Required B Should the project be accepted? Yes ONo

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamental accounting principle

Authors: John J. Wild, Ken W. Shaw, Barbara Chiappetta

21st edition

1259119831, 9781259311703, 978-1259119835, 1259311708, 978-0078025587

More Books

Students also viewed these Accounting questions

Question

7.11 When does it make sense to refinance your home?

Answered: 1 week ago

Question

7.12 What kinds of home equity loans exist?

Answered: 1 week ago