One method for developing a mine containing an estimated 100,000 tons of ore will result in the recovery of 58% of the available ore deposit and will cost $24 per ton of material removed. A second method of development will recover only 52% of the ore deposit, but it will cost only $16 per ton of material removed. Subsequent processing of the removed ore recovers 300 pounds of metal from each ton of processed ore and costs $41 per ton of ore processed. The recovered metal can be sold for $0.82 per pound. You can sell all the metal that is recovered. Which method for developing the mine should be used if your objective is to maximize total profit from the mine?

One method for developing a mine containing an estimated 100,000 tons of ore will result in the recovery of 58% of the available ore deposit and will cost $24 per ton of material removed. A second method of development will recover only 52% of the ore deposit, but it will cost only $16 per ton of material removed. Subsequent processing of the removed ore recovers 300 pounds of metal from each ton of processed ore and costs $41 per ton of ore processed. The recovered metal can be sold for $0.82 per pound. You can sell all the metal that is recovered. Which method for developing the mine should be used if your objective is to maximize total profit from the mine?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 12P: After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide...

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Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?
After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most cost-effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend 900,000 for new mining equipment and pay 165,000 for its installation. The mined gold will net the firm an estimated 350,000 each year for the 5-year life of the vein. CTCs cost of capital is 14%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. a. What are the projects NPV and IRR? b. Should this project be undertaken if environmental impacts were not a consideration? c. How should environmental effects be considered when evaluating this or any other project? How might these concepts affect the decision in part b?
The Perth Mining Co. operates 2 mines for the purpose of extricating bronze and platinum. The Saddle Mine costs $14,000/day to operate, and it yields 50oz of bronze and 3,000ozof platinum each day. The Horseshoe Mine costs $16,000/day to operate, and ityields 75ozof bronze and 1,000oz of platinum each day. Company management has set a target of at least 650oz of bronze and 18,000oz of platinum. How many days should each mine be operated so that the target can be met at a minimum cost? What is the minimum cost?
Sandersen Meat Processors has asked its lead process engineer to evaluate two different types of conveyors for the beef cutting line. Type A has an initial cost of $70,000 and a life of 3 years. Type B has an initial cost of $95,000 and a life expectancy of 6 years. The annual operating cost (AOC) for type A isexpected to be $9000, while the AOC for type B is expected to be $7000. Ifthe salvage values are $5000 and $10,000 for type A and type B, respectively,tabulate the incremental cash flow using their LCM.
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