Introduction To Managerial Accounting
8th Edition
ISBN: 9781259917066
Author: BREWER, Peter C., Garrison, Ray H., Noreen, Eric W.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 12, Problem 16P
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, d it is expected that the following
The mineral deposit would be exhausted after four years of mining. At that point, the
Required:
What is the net present value of the proposed mining project? Should the project be accepted? Explain.
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Net Present Value Analysis
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:
The mineral deposit would be exhausted after four years of mining. At that point, the working capital would he released for reinvestment elsewhere. The company’s required rate of return is 20%.
Required:
What is the net present value of the proposed mining project? Should the project be accepted? Explain.
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.…
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$67.7 million and annual operating expenses of C$19.44 million Maritime
expects that over a five-year operating life it can recover 176,000 ounces of gold from the mine and that the project will
have no terminal cash flow. Maritime uses straight-line depreciation, has a 21.07% corporate tax rate, and has a(n)
11.1% 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.…
Chapter 12 Solutions
Introduction To Managerial Accounting
Ch. 12.A - Basic Present Value Concepts Annual cash inflows...Ch. 12.A - Basic Present value Concepts Julie has just...Ch. 12.A - Prob. 3ECh. 12.A - Prob. 4ECh. 12.A - Basic Present Value Concepts The Atlantic Medical...Ch. 12.A - Prob. 6ECh. 12 - What is the difference between capital budgeting...Ch. 12 - Prob. 2QCh. 12 - Prob. 3QCh. 12 - Prob. 4Q
Ch. 12 - Why are discounted cash flow methods of making...Ch. 12 - Prob. 6QCh. 12 - Identify two simplifying assumptions associated...Ch. 12 - Prob. 8QCh. 12 - Prob. 9QCh. 12 - Prob. 10QCh. 12 - Prob. 11QCh. 12 - Prob. 12QCh. 12 - How is the project profitability index computed,...Ch. 12 - Prob. 14QCh. 12 - Prob. 15QCh. 12 - Prob. 1AECh. 12 - The Excel worksheet form that appears below is to...Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Prob. 3F15Ch. 12 - Prob. 4F15Ch. 12 - Prob. 5F15Ch. 12 - Prob. 6F15Ch. 12 - Prob. 7F15Ch. 12 - Prob. 8F15Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Prob. 11F15Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Prob. 13F15Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Payback Method The management of Unter...Ch. 12 - Net Present Value Analysis The management of...Ch. 12 - Internal Rate of Return Wendell’s Donut Shoppe is...Ch. 12 - Uncertain Future Cash Flows Lukow Products is...Ch. 12 - Prob. 5ECh. 12 - Simple Rate of Return Method The management of...Ch. 12 - Prob. 7ECh. 12 - Payback Period and Simple Rate of Return Nicks...Ch. 12 - Prob. 9ECh. 12 - Prob. 10ECh. 12 - Preference Ranking of Investment Projects Oxford...Ch. 12 - Prob. 12ECh. 12 - Payback Period and Simple Rate of Return...Ch. 12 - Comparison of Projects Using Net Present Value...Ch. 12 - Internal Rate of Return and Net Present Value...Ch. 12 - Net Present Value Analysis Windhoek Mines, Ltd.,...Ch. 12 - Net Present Value Analysis; Internal Rate of...Ch. 12 - Net Present Value Analysis Oakmont Company has an...Ch. 12 - Simple Rate of Return; Payback Period Paul Swanson...Ch. 12 - Prob. 20PCh. 12 - Prob. 21PCh. 12 - Prob. 22PCh. 12 - Comprehensive Problem - Lou Barlow, a divisional...Ch. 12 - Prob. 24PCh. 12 - Prob. 25PCh. 12 - Prob. 26PCh. 12 - Net Present Value Analysis In five years, Kent...Ch. 12 - Prob. 28PCh. 12 - Prob. 29P
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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$68.4 million and annual operating expenses of C$19.43 million. Maritime expects that over a 5-year operating life it can recover 176,000 ounces of gold from the mine and that the project will have no terminal value. Maritime uses straight-line depreciation, has a 21.06% corporate tax rate, and has a(n) 11.2% cost of capital. a. Calculate the operating 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.arrow_forwardc. Sabuni Itd is considering expanding its operation by acquiring a new plant in Mombasa. The cost of the plant is 50 million. The new plant is expected to generate the following projected cash flows for a period of 5 years. Year 1 3 Cash 15,000,000 18,000,000 20,000,000 25,000,000 35,00,000 flows Required: Using NPV technique, advise the company on whether to acquire the plant if the discount rate is 10% LERO)arrow_forwardIntegrative: 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$68.4 million and annual operating expenses of C$19.43 million. Maritime expects that over a 5-year operating life it can recover 176,000 ounces of gold from the mine and that the project will have no terminal value. Maritime uses straight-line depreciation, has a 21.06% corporate tax rate, and has a(n) 11.2% cost of capital. a. Calculate the operating 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.…arrow_forward
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