Problem 13 16 Basic Net Present Value Analysis LO13 2 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 Cost of new equipment and timbers $ 490,000 Working capital required $ 175,000 Annual net cash receipts $ 190,000 Cost to construct new roads in three years $ 55,000 Salvage value of equipment in four years $ 80,000 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 companys required rate of return is 19 Required a Determine the net present value of the proposed mining project (Any cash outflows should be indicated by a minus sign Use the appropriate table to determine the discount factor(s) )

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Problem 13-16 Basic Net Present Value Analysis [LO13-2] Windhoek Mines, Ltd., of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on

Problem 13-16 Basic Net Present Value Analysis [LO13-2]

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:


Cost of new equipment and timbers	$	490,000
Working capital required	$	175,000
Annual net cash receipts	$	190,000*
Cost to construct new roads in three years	$	55,000
Salvage value of equipment in four years	$	80,000

*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 companys required rate of return is 19%.

Required:
a.	Determine the net present value of the proposed mining project. (Any cash outflows should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s).)