Question $2($use Excel template$)$: An investor is considering acquiring and developing a mineral

property believed to contain $500,000$ units of mineral reserves. The mineral rights acquisition cost

for the property would be $$900,000$ at time zero. A mineral development cost of $$1,400,000$ is

anticipated at time zero, along with tangible equipment costs of $$1,500,000$ and working capital

costs of $$300,000,$ all projected to be incurred at year $0.$ Equipment depreciation will be based on

MACRS $7-$year life depreciation, starting with the half$-$year convention in year $1$ when assets are

placed into service. Write off the remaining undepreciated book value at year $5.$ Mineral

production is projected to be $100,000$ mineral units per year over the $5-$year project life, with

mineral reserves depleted at the end of year $5.$ The product's selling price is estimated to be $$30\mathrm{.}00$

per unit in year $1,$ escalating by $10\%$ per year in succeeding years. Operating expenses are

estimated to be $$1,200,000$ in year $1,$ escalating by $8\%$ per year in succeeding years. Royalties are

$15\%$ of revenues each year. The property and equipment are expected to have no net salvage value,

although $100\%$ recovery of the working capital is expected from inventory liquidation at the end

of year $5.$ When applicable, assume the mineral production is a $15\%$ depletion rate mineral.

a$.$ What is the value of the undepreciated asset "write$-$off" taken in year $5?$

b$.$ What is the amount of depletion taken in year $4?$

c$.$ The project is part of a small mining venture, but other revenues are available to cover any

tax loss $($no loss forward$).$ The effective income tax rate is $28\%.$ What is the project cash

flow in year $4?$

d$.$ What is the project NPV assuming a $20\%$ discount rate and the tax situation described in

part c$?$

e$.$ What is the project NPV assuming a $20\%$ discount rate and the project is part of a

government venture?