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 and timbers $ 360,000 Working capital required $ 110,000 Annual net cash receipts $ 140,000 * Cost to construct new roads in year three $ 42,000 Salvage value of equipment in four years $ 67,000 *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 company’s required rate of return is 19%. 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, 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 and timbers $ 360,000 Working capital required $ 110,000 Annual net cash receipts $ 140,000 * Cost to construct new roads in year three $ 42,000 Salvage value of equipment in four years $ 67,000 *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 company’s required rate of return is 19%. 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?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
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 and timbers | $ | 360,000 | |
| Working capital required | $ | 110,000 | |
| Annual net cash receipts | $ | 140,000 | * |
| Cost to construct new roads in year three | $ | 42,000 | |
| Salvage value of equipment in four years | $ | 67,000 | |
*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 company’s required
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
b. Should the project be accepted?
Transcribed Image Text:EXHIBIT 14B-2 Present Value of an Annulty of $1 In Arrears;
(1+ r)"
Periods
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
21%
22%
23%
24%
25%
1
0.962
0.952 0.943
0.935
0.926
0.917
0.909 0.901 0.893 0.885 0.877
0.870 0.862
0.855 0.847
0.840
0.833
0.826
0.820 0.813
0.806 0.800
2
1.886
1.859
1.833
1.808
1.783
1.759
1.736
1.713
1.690
1.668
1.647
1.626 1.605
1.585
1.566 1.547
1.528
1.509
1.492 1.474
1.457
1.440
3
2.775
2.723
2.673
2.624
2.577
2.531
2.487
2.444
2.402 2.361
2.322 2.283 2.246 2.210
2.174
2.140
2.106
2.074
2.042 2.011
1.981
1.952
4
3.630
3.546
3.465
3.387
3.312
3.240
3.170
3.102
3.037 2.974
2.914
2.855 2.798
2.743
2.690 2.639 2.589 2.540 2.494 2.448 2.404 2.362
4.452
4.329
4.212
4.100
3.993
3.890
3.791
3.696
3.605 3.517
3.433
3.352
3.274 3.199
3.127
3.058 2.991
2.926 2.864 2.803 2.745
2.689
6
5.242
5.076
4.917
4.767
4.623
4.486
4.355 4.231
4.111
3.998 3.889
3.784 3.685 3.589 3.498 3.410
3.326 3.245 3.167
3.092 3.020 2.951
7
6.002
5.786
5.582
5.389
5.206
5.033
4.868
4.712
4.564 4.423
4.288 4.160
4.039 3.922 3.812
3.706
3.605 3.508 3.416
3.327
3.242 3.161
8
6.733
6.463
6.210
5.971
5.747
5.535
5.335 5.146
4.968 4.799
4.639 4.487
4.344 4.207
4.078 3.954 3.837
3.726
3.619
3.518
3.421
3.329
7.435
7.108
6.802
6.515
6.247
5.995
5.759
5.537
5.328 5.132
4.946 4.772
4.607 4.451
4.303 4.163
4.031
3.905 3.786
3.673
3.566 3.463
10
8.111
7.722
7.360
7.024
6.710
6.418
6.145
5.889 5.650 5.426
5.216
5.019
4.833 4.659
4.494 4.339
4.192
4.054 3.923 3.799
3.682 3.571
11
8.760
8.306
7.887
7.499
7.139
6.805
6.495 6.207
5.938 5.687
5.453 5.234 5.029 4.836 4.656 4.486
4.327 4.177
4.035 3.902 3.776
3.656
12
9.385
8.863
8.384
7.943
7.536
7.161
6.814
6.492 6.194
5.918
5.660 5.421 5.197
4.988
4.793
4.611
4.439 4.278
4.127
3.985 3.851
3.725
13
9.986
9.394
8.853
8.358
7.904
7.487
7.103
6.750
6.424 6.122
5.842 5.583
5.342 5.118
4.910
4.715
4.533
4.362 4.203 4.053
3.912
3.780
14
10.563 9.899
9.295
8.745
8.244
7.786
7.367
6.982 6.628 6.302 6.002 5.724
5.468 5.229 5.008 4.802 4.611
4.432
4.265 4.108
3.962 3.824
15
11.118
10.380 9.712
9.108
8.559
8.061
7.606
7.191
6.811
6.462 6.142
5.847 5.575
5.324 5.092 4.876
4.675 4.489
4.315
4.153
4.001
3.859
16
11.652
10.838 10.106
9.447
8.851
8.313
7.824
7.379
6.974 6.604
6.265 5.954 5.668 5.405 5.162
4.938 4.730
4.536 4.357 4.189
4.033 3.887
17
12.166
11.274
10.477
9.763
9.122
8.544
8.022 7.549
7.120
6.729
6.373
6.047 5.749
5.475
5.222 4.990 4.775
4.576
4.391
4.219
4.059 3.910
18
12.659 11.690
10.828 10.059 9.372
8.756
8.201
7.702
7.250
6.840
6.467 6.128
5.818
5.534 5.273 5.033
4.812
4.608
4.419
4.243 4.080 3.928
19
13.134
12.085 11.158
10.336 9.604
8.950
8.365 7.839
7.366 6.938 6.550 6.198
5.877
5.584 5.316 5.070
4.843 4.635
4.442
4.263 4.097
3.942
20
13.590 12.462 11.470
10.594 9.818
9.129
8.514
7.963 7.469
7.025
6.623 6.259 5.929 5.628 5.353 5.101
4.870
4.657 4.460 4.279
4.110
3.954
21
14.029 12.821
11.764
10.836 10.017
9.292
8.649
8.075 7.562
7.102
6.687
6.312
5.973 5.665 5.384
5.127
4.891
4.675
4.476 4.292 4.121
3.963
22
14.451
13.163
12.042 11.061
10.201 9.442
8.772
8.176
7.645
7.170
6.743
6.359 6.011
5.696 5.410
5.149
4.909 4.690
4.488
4.302 4.130
3.970
23
14.857
13.489 12.303 11.272
10.371 9.580
8.883
8.266 7.718
7.230
6.792 6.399 6.044 5.723 5.432 5.167
4.925 4.703
4.499 4.311
4.137
3.976
24
15.247 13.799
12.550 11.469
10.529 9.707
8.985 8.348 7.784
7.283
6.835 6.434 6.073 5.746
5.451 5.182
4.937
4.713
4.507 4.318
4.143
3.981
25
15.622 14.094 12.783
11.654
10.675 9.823
9.077
8.422 7.843
7.330
6.873
6.464 6.097 5.766
5.467 5.195
4.948 4.721
4.514
4.323 4.147
3.985
26
15 983 14.375
13.003 11.826
10.810 9.929
9.161
8.488
8 488 7.896 7.372
6.906 6.491
6.118
5.783
5.480 5.206 4.956 4.728
4.520 4.328 4.151
3.988
27
16.330 14.643
13.211
11.987
10.935 10.027
9.237
8.548
7.943
7.409
6.935 6.514 6136
5.798
5.492 5.215
4.964 4.734
4.524 4.332
4.154
3.990
28
16.663 14.898 13.406
12.137
11.051
10.116
9.307 8.602 7.984
7.441
6.961
6.534 6.152
5.810
5.502 5.223 4.970 4.739
4.528 4.335 4.157
3.992
29
16.984 15,141
13.591
12.278 11.158
10.198
9.370 8.650 8.022 7.470
6.983 6.551
6.166
5.820 5.510 5.229 4.975
4.743
4.531
4.337
4.159
3.994
30
17.292
15.372 13.765
12.409 11.258 10.274 9.427
8.694 8.055 7.496 6.566 6.177
7.003
5.829 5.517 5.235 4.979
4.746
4.534 4.339
4.160
3.995
40
19.793
17.159
15.046 13.332 11.925 10.757 9.779
8.951
8.244 7.634
7105
6.642
6.233 5.871
5.548 5.258 4.997 4.760
4.544 4.347
4.166
3.999
Transcribed Image Text:EXHIBIT 14B-2 Present Value of an Annulty of $1 In Arrears;
(1+ r)"
Periods
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
21%
22%
23%
24%
25%
1
0.962
0.952 0.943
0.935
0.926
0.917
0.909 0.901 0.893 0.885 0.877
0.870 0.862
0.855 0.847
0.840
0.833
0.826
0.820 0.813
0.806 0.800
2
1.886
1.859
1.833
1.808
1.783
1.759
1.736
1.713
1.690
1.668
1.647
1.626 1.605
1.585
1.566 1.547
1.528
1.509
1.492 1.474
1.457
1.440
3
2.775
2.723
2.673
2.624
2.577
2.531
2.487
2.444
2.402 2.361
2.322 2.283 2.246 2.210
2.174
2.140
2.106
2.074
2.042 2.011
1.981
1.952
4
3.630
3.546
3.465
3.387
3.312
3.240
3.170
3.102
3.037 2.974
2.914
2.855 2.798
2.743
2.690 2.639 2.589 2.540 2.494 2.448 2.404 2.362
4.452
4.329
4.212
4.100
3.993
3.890
3.791
3.696
3.605 3.517
3.433
3.352
3.274 3.199
3.127
3.058 2.991
2.926 2.864 2.803 2.745
2.689
6
5.242
5.076
4.917
4.767
4.623
4.486
4.355 4.231
4.111
3.998 3.889
3.784 3.685 3.589 3.498 3.410
3.326 3.245 3.167
3.092 3.020 2.951
7
6.002
5.786
5.582
5.389
5.206
5.033
4.868
4.712
4.564 4.423
4.288 4.160
4.039 3.922 3.812
3.706
3.605 3.508 3.416
3.327
3.242 3.161
8
6.733
6.463
6.210
5.971
5.747
5.535
5.335 5.146
4.968 4.799
4.639 4.487
4.344 4.207
4.078 3.954 3.837
3.726
3.619
3.518
3.421
3.329
7.435
7.108
6.802
6.515
6.247
5.995
5.759
5.537
5.328 5.132
4.946 4.772
4.607 4.451
4.303 4.163
4.031
3.905 3.786
3.673
3.566 3.463
10
8.111
7.722
7.360
7.024
6.710
6.418
6.145
5.889 5.650 5.426
5.216
5.019
4.833 4.659
4.494 4.339
4.192
4.054 3.923 3.799
3.682 3.571
11
8.760
8.306
7.887
7.499
7.139
6.805
6.495 6.207
5.938 5.687
5.453 5.234 5.029 4.836 4.656 4.486
4.327 4.177
4.035 3.902 3.776
3.656
12
9.385
8.863
8.384
7.943
7.536
7.161
6.814
6.492 6.194
5.918
5.660 5.421 5.197
4.988
4.793
4.611
4.439 4.278
4.127
3.985 3.851
3.725
13
9.986
9.394
8.853
8.358
7.904
7.487
7.103
6.750
6.424 6.122
5.842 5.583
5.342 5.118
4.910
4.715
4.533
4.362 4.203 4.053
3.912
3.780
14
10.563 9.899
9.295
8.745
8.244
7.786
7.367
6.982 6.628 6.302 6.002 5.724
5.468 5.229 5.008 4.802 4.611
4.432
4.265 4.108
3.962 3.824
15
11.118
10.380 9.712
9.108
8.559
8.061
7.606
7.191
6.811
6.462 6.142
5.847 5.575
5.324 5.092 4.876
4.675 4.489
4.315
4.153
4.001
3.859
16
11.652
10.838 10.106
9.447
8.851
8.313
7.824
7.379
6.974 6.604
6.265 5.954 5.668 5.405 5.162
4.938 4.730
4.536 4.357 4.189
4.033 3.887
17
12.166
11.274
10.477
9.763
9.122
8.544
8.022 7.549
7.120
6.729
6.373
6.047 5.749
5.475
5.222 4.990 4.775
4.576
4.391
4.219
4.059 3.910
18
12.659 11.690
10.828 10.059 9.372
8.756
8.201
7.702
7.250
6.840
6.467 6.128
5.818
5.534 5.273 5.033
4.812
4.608
4.419
4.243 4.080 3.928
19
13.134
12.085 11.158
10.336 9.604
8.950
8.365 7.839
7.366 6.938 6.550 6.198
5.877
5.584 5.316 5.070
4.843 4.635
4.442
4.263 4.097
3.942
20
13.590 12.462 11.470
10.594 9.818
9.129
8.514
7.963 7.469
7.025
6.623 6.259 5.929 5.628 5.353 5.101
4.870
4.657 4.460 4.279
4.110
3.954
21
14.029 12.821
11.764
10.836 10.017
9.292
8.649
8.075 7.562
7.102
6.687
6.312
5.973 5.665 5.384
5.127
4.891
4.675
4.476 4.292 4.121
3.963
22
14.451
13.163
12.042 11.061
10.201 9.442
8.772
8.176
7.645
7.170
6.743
6.359 6.011
5.696 5.410
5.149
4.909 4.690
4.488
4.302 4.130
3.970
23
14.857
13.489 12.303 11.272
10.371 9.580
8.883
8.266 7.718
7.230
6.792 6.399 6.044 5.723 5.432 5.167
4.925 4.703
4.499 4.311
4.137
3.976
24
15.247 13.799
12.550 11.469
10.529 9.707
8.985 8.348 7.784
7.283
6.835 6.434 6.073 5.746
5.451 5.182
4.937
4.713
4.507 4.318
4.143
3.981
25
15.622 14.094 12.783
11.654
10.675 9.823
9.077
8.422 7.843
7.330
6.873
6.464 6.097 5.766
5.467 5.195
4.948 4.721
4.514
4.323 4.147
3.985
26
15 983 14.375
13.003 11.826
10.810 9.929
9.161
8.488
8 488 7.896 7.372
6.906 6.491
6.118
5.783
5.480 5.206 4.956 4.728
4.520 4.328 4.151
3.988
27
16.330 14.643
13.211
11.987
10.935 10.027
9.237
8.548
7.943
7.409
6.935 6.514 6136
5.798
5.492 5.215
4.964 4.734
4.524 4.332
4.154
3.990
28
16.663 14.898 13.406
12.137
11.051
10.116
9.307 8.602 7.984
7.441
6.961
6.534 6.152
5.810
5.502 5.223 4.970 4.739
4.528 4.335 4.157
3.992
29
16.984 15,141
13.591
12.278 11.158
10.198
9.370 8.650 8.022 7.470
6.983 6.551
6.166
5.820 5.510 5.229 4.975
4.743
4.531
4.337
4.159
3.994
30
17.292
15.372 13.765
12.409 11.258 10.274 9.427
8.694 8.055 7.496 6.566 6.177
7.003
5.829 5.517 5.235 4.979
4.746
4.534 4.339
4.160
3.995
40
19.793
17.159
15.046 13.332 11.925 10.757 9.779
8.951
8.244 7.634
7105
6.642
6.233 5.871
5.548 5.258 4.997 4.760
4.544 4.347
4.166
3.999
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