Alpha Coal, Limited, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company hasmineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associatedwith opening and operating a mine in the area:Cost of new equipment and timbersWorking capital requiredAnnual net cash receiptsCost to construct new roads in three yearsSalvage value of equipment in four years$360,000$110,000$140,000-$ 42,000$ 67,000*Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, taxes, and so forth.The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released forreinvestment elsewhere. The company's required rate of return is 19%Required:a. What is the net present value of the proposed mining project?b. Should the project be accepted?

Alpha Coal Mine Project Analysisa. Net Present Value (NPV) Calculation:Year Cash Flow Discount…

Answered: Alpha Coal, Limited, is contemplating…

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 14P

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Gallant Sports s considering the purchase of a new rock-climbing facility. The company estimates that the construction will require an initial outlay of $350,000. Other cash flows are estimated as follows: Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the rock-climbing facility. Should the company develop the facility if the required rate of return is 6%?
Check my work 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: Cost of new equipment and timbers Working capital required Annual net cash receipts Cost to construct new roads in year three Salvage value of equipment in four years $ 410,000 $ 135,000 S 150,000* $ 47,000 S 72,000 *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 18%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: a. What is the net present…
Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. The company estimated the following cash flows related to opening and operating a mine in the area: Cost of new equipment and timbers Working capital required Annual net cash receipts Cost to construct new roads in three years Salvage value of equipment in four years. $ 330,000 $ 200,000 $ 135,000* $ 60,000 $ 85,000 *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 18%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: a. What is the net present value of the proposed mining project? b. Should the project be accepted?
Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. The company estimated the following cash flows related to opening and operating a mine in the area: Cost of new equipment and timbers Working capital required Annual net cash receipts Cost to construct new roads in three years Salvage value of equipment in four years *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 18%. Click here to view Exhibit 148-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: a. What is the net present value of the proposed mining project? b. Should the project be accepted? $ 400,000 $ 220,000 $ 155,000. $ 64,000 $ 89,000…
Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. The company estimated the following cash flows related to opening and operating a mine in the area: Cost of new equipment and timbers Working capital required. Annual net cash receipts Cost to construct new roads in three years Salvage value of equipment in four years *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 18%. Click here to view Exhibit 148-1 and Exhibit 148-2. to determine the appropriate discount factor(s) using tables. Required: a. What is the net present value of the proposed mining project? b. Should the project be accepted? Complete this question by entering your answers in…
The L-S Mining Company is planning to open a new strip mine in western Pennsylvania. The net investment required to open the mine is $13 million. Net cash flows are expected to be +$22 million at the end of year 1 and +$7 million at the end of year 2. At the end of year 3, L-S will have a net cash outflow of $17 million to cover the cost of closing the mine and reclaiming the land. Use Table II to answer the questions. Calculate the net present value of the strip mine if the cost of capital is 1, 6, 9, 30, 42, and 75 percent. Enter your answers in millions. For example, an answer of $1.20 million should be entered as 1.20, not 1,200,000. Round your answers to two decimal places. k NPV 1% $ million 6% $ million 9% $ million 30% $ million 42% $ million 75% $ million What is unique about this project? The NPV is negative at discount rates between % and %, positive from % to % and negative beyond %. Should the project be accepted if L-S's cost of capital…
The following data concern an investment project (Ignore income taxes.): Investment in equipment Annual net cash inflows $ 215,000 $ 56,000 $ 70,700 $ 27,000 Salvage value of the equipment Working capital required Life of the project Required rate of return 5 years Net present value 12% The working capital will be released for use elsewhere at the conclusion of the project. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Required: Compute the project's net present value. Note: Round your intermediate calculations and final answer to the nearest whole dollar amount.
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Manama Manufacturing has $170,000 to invest in either Project A or Project B. The following data are available on these projects: Project B Project A $170,000 Cost of equipment needed now $160,000 Working capital investment needed $0 $10,000 now Annual net operating cash inflows $45,000 $55,000 Salvage value of equipment in 10 years $30,000 $0 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Both projects have a useful life of 10 years. At the end of 10 years, the working capital investment will be released for use elsewhere. Manama's discount rate is 12%. The net present value of Project A is closest to: A. $83,550 B. $91,800 OC. $93,910 $71.215 OOOO UD OD.
Forise Water Company drills small commercial water wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below. Initial investment: Asset $700,000 Working capital $188,000 Operations (per year for four years): Cash receipts $530,000 Cash expenditures $240,000 Disinvestment: Salvage value of drill (existing) $120,000 Discount rate 18% What is the net present value of the investment? Assume there is no recovery of working capital.
Oriental Corporation has gathered the following data on a proposed investment project: Investment in depreciable equipment $ 560,000 Annual net cash flows $ 82,000 Life of the equipment 16 years Salvage value $ 0 Discount rate 9 % The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. The payback period for the investment would be:
Bailey Corporation is considering purchasing one of two new processing machines. Either machinewould make it possible for the company to produce its products more efficiently than it is currentlyequipped to do. Estimates regarding each machine are provided below:Machine A Machine BInitial Investment $113,250 $270,000Estimated life 10 years 10 yearsSalvage value -0- -0-Estimated annual cash inflows $30,000 60,000Estimated annual cash outflows $ 7,500 $15,000Instructions1. Calculate the net present value and profitability index of each machine. Assume an 8% discountrate. Which machine should be purchased?Bailey Corporation did some further research and found one other possible machine that would producethe same type of production efficiencies. The information regarding Machine C is below:Machine CInitial Investment $250,000Estimated life 10 yearsSalvage value $ 30,000Estimated annual cash inflows $ 45,000Estimated annual cash outflows $ 10,0002. Calculate the net present value and…

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