Integrative: Complete investment decision With the market price of gold at C$1,562.50 per ounce (CS stands for Canadian dollars), Maritime Resources Corp., a Canadian mining firm, would like to assess the financial feasibility of reopening an old gold mine that had ceased operations in the past due to low gold prices. Reopening the mine would require an up-front capital expenditure of C$68.3 million and annual operating expenses of C$19.37 million. Maritime expects that over a five-year operating life it can recover 175,000 ounces of gold from the mine and that the project will have no terminal cash flow. Maritime uses straight-line depreciation, has a 21.03% corporate tax rate, and has a(n) 11.2% cost of capital. a. Calculate the periodic cash flows for the gold mine project. b. Depict on a timeline the net cash flows for the gold mine project. c. Calculate the internal rate of return (IRR) for the gold mine project. d. Calculate the net present value (NPV) for the gold mine project. e. Make a recommendation to accept or reject the gold mine project, and justify your answer. a. Calculate the periodic cash flows for the gold mine project. (Round to the nearest dollar.) Periodic Cash Flows for Gold Mine Project Revenue s Operating Expenses EBIT Depreciation NPBT Taxes NPAT OCF

Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows
Section: Chapter Questions
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Integrative: Complete investment decision With the market price of gold at C$1,562.50 per ounce (C$ stands for Canadian dollars), Maritime Resources Corp., a Canadian mining firm, would like to assess the financial feasibility of reopening an old gold mine that had ceased operations in the past
due to low gold prices. Reopening the mine would require an up-front capital expenditure of C$68.3 million and annual operating expenses of C$19.37 million. Maritime expects that over a five-year operating life it can recover 175,000 ounces of gold from the mine and that the project will have no terminal
cash flow. Maritime uses straight-line depreciation, has a 21.03% corporate tax rate, and has a(n) 11.2% cost of capital.
a. Calculate the periodic cash flows for the gold mine project.
b. Depict on a timeline the net cash flows for the gold mine project.
c. Calculate the internal rate of return (IRR) for the gold mine project.
d. Calculate the net present value (NPV) for the gold mine project.
e. Make a recommendation to accept or reject the gold mine project, and justify your answer.
a. Calculate the periodic cash flows for the gold mine project. (Round to the nearest dollar.)
Periodic Cash Flows for Gold Mine Project
$
Revenue
Operating Expenses
EBIT
Depreciation
NPBT
Taxes
NPAT
OCF
COO
Transcribed Image Text:Integrative: Complete investment decision With the market price of gold at C$1,562.50 per ounce (C$ stands for Canadian dollars), Maritime Resources Corp., a Canadian mining firm, would like to assess the financial feasibility of reopening an old gold mine that had ceased operations in the past due to low gold prices. Reopening the mine would require an up-front capital expenditure of C$68.3 million and annual operating expenses of C$19.37 million. Maritime expects that over a five-year operating life it can recover 175,000 ounces of gold from the mine and that the project will have no terminal cash flow. Maritime uses straight-line depreciation, has a 21.03% corporate tax rate, and has a(n) 11.2% cost of capital. a. Calculate the periodic cash flows for the gold mine project. b. Depict on a timeline the net cash flows for the gold mine project. c. Calculate the internal rate of return (IRR) for the gold mine project. d. Calculate the net present value (NPV) for the gold mine project. e. Make a recommendation to accept or reject the gold mine project, and justify your answer. a. Calculate the periodic cash flows for the gold mine project. (Round to the nearest dollar.) Periodic Cash Flows for Gold Mine Project $ Revenue Operating Expenses EBIT Depreciation NPBT Taxes NPAT OCF COO
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