Sales Revenue in year 1 is $56,700,000; net income in year 3 is $884,000; projecta incremental cash flow in year 4 is $29,884,000

Looking for NPV

Anthras Mining Anthras Mining is a midsized coal mining company with seventeen mines located in the Appalachian Mountains. Most of the coal it mines is sold under contract, with excess production sold on the spot market. High-sulfur coal operations are recovering because of an increased demand for coal and new pollution reduction technologies to overcome the high-sulfur content. Anthras has just been approached by Cumberland Power with a request to supply coal for its electric generators for the next four years. The company is considering opening a strip mine in Kolen, PA on two thousand acres of land purchased ten years ago for $7 million because it does not currently have enough excess capacity at its existing mines to guarantee the contract. The value of the land has not changed in the past ten years and is not expected to change in the next ten years. Anthras will need to purchase additional necessary equipment, which will cost $88 million. This equipment will be fully depreciated to zero over the four-year life of the project at which time it will also have no value. The contract calls for the delivery of 600,000 tons of coal per year at a price of $94.50 per ton. Variable costs amount to $39 per ton, and fixed costs are $10 million per year. Anthras faces a 32 percent tax rate and has a 14 percent required return on new strip- mine projects. Assume that a loss in any year will result in a tax credit. You have been approached by the president of the company with a request to analyze the project. Should Anthras Mining take the contract and open the mine? Fully describe the project, in sentences, using the three investment criteria tools