Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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.

image text in transcribed

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: Cost of new equipment required and timbers Working capital required Annual net cash inflows Cost to construct new roads in three years Salvage value of equipment in four years $490,000 $100,000 $190,000 $ 55,000 $ 80,000 *Receipts from sales of ore, less 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 19%. Required: a. Determine the net present value of the proposed mining project. (Hint: Use Microsoft Excel to calculate the discount factor(s). (Any cash outflows should be indicated by a minus sign. Do not round your intermediate calculations.) Amount of Present Value Year(s) Cash Flows of Cash Flows Now Now 1-4 Item Cost of equipment required Working capital required Net annual cash receipts Cost of road construction Salvage value of equipment Working capital released Net present value 3 4 4 S 0 b. Should the project be accepted? Yes No

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions

Question

Determine weather convergent or divergent c.

Answered: 1 week ago

Question

4. What are the current trends in computer software platforms?

Answered: 1 week ago