Maurice Tutor

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Teaching Since: May 2017
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  • MCS,PHD
    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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  • Professor
    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 11 Aug 2017 My Price 9.00

Net Present Value Analysis

Final Exam Problem 5: Net Present Value Analysis      
           
Wind Mines 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:        
           
Cost of new equipment and timbers   $275,000      
Working capital required   $100,000      
Net annual cash receipts*   $120,000      
Cost to construct new roads in three years $40,000      
Salvage value of equipment in four years $65,000      
           
* Receipts from sale of ore, less out-of-pocket cost for salaries    
utilities, insurance etc.          
           
It is estimated that 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 required rate of return is 20%.          
           
Required:          
(Ignore income taxes.) Determine the net present value of the proposed project.  
Should the project be accepted? Explain. Show your work below.    
Construct a table below similar to the ones used for homework and illustrated in the text
with proper heading etc.

 

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Maurice Tutor
(5)
Status NEW Posted 11 Aug 2017 03:08 PM My Price 9.00

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