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: + 275,000 Cost of new equipment and timbers 100,000 Working capital required $ 120,000* Annual net cash receipts Cost to construct new roads in three $40,000 years Salvage value of equipment in four years $65,000 *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 20%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: a. Determine the net present value of the proposed mining project. (Any cash outflows should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s). When you enter a factor, use a whole number followed by 3 decimal places, for example: 0.123.)

Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows
Section: Chapter Questions
Problem 19P
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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:
+ 275,000
Cost of new equipment and timbers
100,000
Working capital required
$
120,000*
Annual net cash receipts
Cost to construct new roads in three
$40,000
years
Salvage value of equipment in four
years
$65,000
*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 20%.
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount
factor(s) using tables.
Required:
a. Determine the net present value of the proposed mining project. (Any cash outflows
should be indicated by a minus sign. Use the appropriate table to determine the
discount factor(s). When you enter a factor, use a whole number followed by 3
decimal places, for example: 0.123.)
Transcribed Image Text: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: + 275,000 Cost of new equipment and timbers 100,000 Working capital required $ 120,000* Annual net cash receipts Cost to construct new roads in three $40,000 years Salvage value of equipment in four years $65,000 *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 20%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: a. Determine the net present value of the proposed mining project. (Any cash outflows should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s). When you enter a factor, use a whole number followed by 3 decimal places, for example: 0.123.)
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