Integrative: Complete investment decision With the market price of gold at CS1,562.50 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$68.1 million and annual operating expenses of CS19.38 million. Maritime expects that over a 5-year operating life it can recover 173,000 ounces of gold from the mine and that the project will have no terminal value. Maritime uses straight-line depreciation, has a 21.01% corporate tax rate, and has a(n) 10.9% 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. Make a recommendation to accept or reject the gold mine project, and justify your answer.

Integrative: Complete investment decision With the market price of gold at CS1,562.50 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$68.1 million and annual operating expenses of CS19.38 million. Maritime expects that over a 5-year operating life it can recover 173,000 ounces of gold from the mine and that the project will have no terminal value. Maritime uses straight-line depreciation, has a 21.01% corporate tax rate, and has a(n) 10.9% 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. Make a recommendation to accept or reject the gold mine project, and justify your answer.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 14E

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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.
Windhoek Mines, Ltd., of Namibia, is contemplating the purchase of equipment to exploit a mineraldeposit 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 inthe area:Cost of new equipment and timbers .............................................. R275,000Working capital required ................................................................ R100,000Annual net cash receipts ............................................................... R120,000*Cost to construct new roads in three years ................................... R40,000Salvage value of equipment in four years ..................................... R65,000*Receipts from sales of ore, less out-of-pocket costs for salaries, utilities,insurance, and so forth.The currency in Namibia is the rand, denoted here by R.The mineral deposit would be exhausted after four years of mining. At…
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