Answer:
Windhoek Mines, Ltd.
The net present value of the proposed mining project is:
= ($232,950).
Explanation:
a) Data and Calculations:
Cost of new equipment and timbers = $500,000
Working capital required = $100,000
Annual net cash receipts = $120,000
Cost to construct new roads in three years = $40,000
Salvage value of equipment in four years = $65,000
Estimated useful life of mine = 4 years
Working capital released in four years = $100,000
Required rate of return = 20%
Cash Flows PV factor Present Value
Cost of new equipment and timbers $500,000 1 -$500,000
Working capital required 100,000 1 -100,000
Annual net cash receipts 120,000 2.589 310,680
Cost to construct new roads in 3 years 40,000 0.579 -23,160
Salvage value of equipment in 4 years 65,000 0.482 31,330
Working capital released in 4 years 100,000 0.482 48,200
Net present value ($232,950)
