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 $
Receipts from sales of ore, less outofpocket 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 companys required rate of return is
Required:
a Determine the net present value of the proposed mining project. Hint: Use Microsoft Excel to calculate the discount factorsDo not round intermediate calculations and PV factor. Round the final answers to the nearest whole dollar. Any cash outflows should be indicated by a minus sign.
b Should the project be accepted?
multiple choice
Yes
No
