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Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights.

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Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which
the company has mineral rights. The company estimated the following cash flows related to opening and operating a mine in the
area:
*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 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.
Required:
a. What is the net present value of the proposed mining project?
b. Should the project be accepted?Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. The company estimated the following cash flows related to opening and operating a mine in the area:
Cost of new equipment and timbers $ 320,000
Working capital required $ 195,000
Annual net cash receipts $ 130,000*
Cost to construct new roads in three years $ 59,000
Salvage value of equipment in four years $ 84,000
*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 18%.
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.
Required:
What is the net present value of the proposed mining project?
Should the project be accepted?
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