Question
ounts are in $USD. Red River Resources is deciding between two iron ore projects in May 2017. Project A has an initial outlay of $15.75
ounts are in $USD. Red River Resources is deciding between two iron ore projects in May 2017. Project A has an initial outlay of $15.75 billion and Project B has an initial outlay of $13.75 billion. Project A is projected to sell 160 million tonnes of iron ore for the next 5 years and have cost of sales equal to 50% of iron ore revenues. In addition to these cost of sales expenses Project A will use 40million barrels of crude oil each year. Project B will sell 190 million tonnes of iron ore for the next 5 years and have cost of sales equal to 45% of iron ore revenues. In addition to these cost of sales expenses Project B will use 30 million barrels of crude oil each year. Both Project A and B It will also incur additional working capital expenses at the beginning of the projects of $400,000 and recover these at the end of year 5. Assume the iron ore will stay at the price it was in Jan 2017 for the next 5 years. Assume the crude oil will stay at the price it was in Jan 2017 for the next 5 years. Both mines have depreciation costs of $2,000,000,000 a year. The tax rate is 30%. All cash flows are annual and are received/paid at the end of each year
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