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Question 8 Capital Budgeting Suggested time 15 minutes 10 Marks YouAre AlmostDone Mines, Ltd., of Medicine Hat, is contemplating the purchase of equipment to exploit

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Question 8 Capital Budgeting Suggested time 15 minutes 10 Marks YouAre AlmostDone Mines, Ltd., of Medicine Hat, 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 required and timbers $ 480,000 Working capital required $ 100,000 Annual net cash inflows $ 185,000 Cost to construct new roads in three years $ 54,000 Salvage value of equipment in four years $ 79,000 "Receipts from sales of ore, loss out-of-pocket costs for salaries, utilities, insurance, etc 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 15% Required Determine the net present value of the proposed mining project. Should the project be accepted? Explain

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