Question 1: Need NPV
Question 2:
a. NPV of cash flows with purchase alternative
b. NPV of cash flows with lease alternative
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: $ 190,000 $ 125,000 $ 58,000 SB3.000 Coat of new equipment and timbers $ 310,000 Working capital required Annual net cash receipts Cost to construct new roads in year three Salvage value of equipment in four years *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 12-1 and Exhibit 128-2. to determine the appropriate discount factors) using tables. Required: a. What is the net present value of the proposed mining project? b. Should the project be accepted? OCR my work The Riteway Ad Agency provides cars for its sales staff. In the past, the company has always purchased its cars from a dealer and then sold the cars after three years of use. The company's present fleet of cars is three years old and will be sold very shortly. To provide a replacement fleet, the company is considering two alternatives: Purchase alternatives The company can purchase the cars, as in the past, and sell the cars after three years of use. Ten cars will be needed, which can be purchased at a discounted price of $20,000 each. If this alternative is accepted, the following costs will be incurred on the fleet as a whole: Annual cost of servicing, taxes, and licensing Repairs, first year Repairs, second year Repairs, third year $ 3,600 1,500 $ 4,000 $ 6.000 At the end of three years, the fleet could be sold for one-half of the original purchase price Lease alternative: The company can lease the care under a three-year loan contract. The lease coat would be $55,000 per year the first payment due at the end of Year 1). No part of this lease coat, the owner would provide all servicing and repairs, license the Cars, and pay all the taxes. Riteway would be required to make a $12,000 security deposit at the beginning of the lease period, which would be refunded when the care vor veturned to the owner at the end of the le contract. Riteway Ad Agency's required rate of return is 19% Click here to view Exhibit 120.1 and Exhibit 128-2. to determine the appropriate discount factors) using tables. Required: 1. What is the net present value of the cash flows associated with the purchase alternative? 2. What is the net present value of the cash flows associated with the lease alternative? 3. Which alternative should the company accept
