Wittwater Mining ple has bought mine where it plans to extract gravel for use in the construction industry. The mine is expected to supply gravel for five years and then be sold. The following figures are estimated for future five years: • The initial cost of the mine and the equipment is $2 000 000, and on the last day of year five, the mine and equipment will be sold for $1 800 000. The Wittwater Mining ple use the straight-line method to charge depreciation for mine and equipment, the depreciation rate is 20%. In year 1, sales will be 180 tons of gravel per week, at a price of S20 per ton. In years 2 and 3, sales will be 190 tons of gravel per week, at a price of $21 per ton. In years 4 and 5, sales will be 170 tons of gravel per week, at a price of $22 per ton. In years 1 and 2, the running costs (including depreciation) are expected to be S2 000 a week. • In years 3 and 4, the running costs (including depreciation) are expected to be S2 200 a week. In year 5, the running costs (including depreciation) are expected to be $2 500 a week. Wittwater Mining ple will extract gravel for 52 weeks in each year. The cost of capital of Wittwater Mining ple is 5%. Wittwater Mining plc will not consider the corporate tax.

Wittwater Mining ple has bought mine where it plans to extract gravel for use in the construction industry. The mine is expected to supply gravel for five years and then be sold. The following figures are estimated for future five years: • The initial cost of the mine and the equipment is $2 000 000, and on the last day of year five, the mine and equipment will be sold for $1 800 000. The Wittwater Mining ple use the straight-line method to charge depreciation for mine and equipment, the depreciation rate is 20%. In year 1, sales will be 180 tons of gravel per week, at a price of S20 per ton. In years 2 and 3, sales will be 190 tons of gravel per week, at a price of $21 per ton. In years 4 and 5, sales will be 170 tons of gravel per week, at a price of $22 per ton. In years 1 and 2, the running costs (including depreciation) are expected to be S2 000 a week. • In years 3 and 4, the running costs (including depreciation) are expected to be S2 200 a week. In year 5, the running costs (including depreciation) are expected to be $2 500 a week. Wittwater Mining ple will extract gravel for 52 weeks in each year. The cost of capital of Wittwater Mining ple is 5%. Wittwater Mining plc will not consider the corporate tax.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 16P

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