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.
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
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Transcribed Image Text:Required:
(1) Calculate the net cash flow for each of the fíve years of the project.
(2) Calculate the net profit for each of the five years of the project.
(3) Calculate the net present value of the project.
(4) Wittwater Mining plc is also appraising the project using the internal rate of return
method. Using a discount rate of 4%, the accountant has calculated a net present value
of $37 696.
Calculate the internal rate of return correct to two decimal places.
(5) Evaluate the project for Wittwater Mining plc, using the above calculations.
Transcribed Image Text: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.
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