Knowee
Questions
Features
Study Tools

Find the net present value (NPV) of a mining project with the following cash flows:-$4,500 at time zero (t=0). This is the initial cost to prepare and build the mine and facilities. This cost is all paid upfront, though the builders will take 2 years to finish construction.$500 paid annually 40 times, where the first payment is made 3 years from now. So there are 40 annual payments from t=3 to t=42 inclusive. These are the positive cash flows from running the mine once it's built.-$800 at t=42. This is the clean-up cost of burying the mine and replanting native vegetation at the end of the project. This cost is paid at the same time as the last positive cash flow is received from running the mine.The required return is 13% pa. All dollar figures above and below are in millions. The NPV of this project is:Question 10Select one:a.$3,817.19b.$2,989.42c.-$1,482.81d.-$1,515.3e.-$1,516.61

Question

Find the net present value (NPV) of a mining project with the following cash flows:-4,500attimezero(t=0).Thisistheinitialcosttoprepareandbuildthemineandfacilities.Thiscostisallpaidupfront,thoughthebuilderswilltake2yearstofinishconstruction.4,500 at time zero (t=0). This is the initial cost to prepare and build the mine and facilities. This cost is all paid upfront, though the builders will take 2 years to finish construction.500 paid annually 40 times, where the first payment is made 3 years from now. So there are 40 annual payments from t=3 to t=42 inclusive. These are the positive cash flows from running the mine once it's built.-800att=42.Thisistheclean−upcostofburyingthemineandreplantingnativevegetationattheendoftheproject.Thiscostispaidatthesametimeasthelastpositivecashflowisreceivedfromrunningthemine.Therequiredreturnis13800 at t=42. This is the clean-up cost of burying the mine and replanting native vegetation at the end of the project. This cost is paid at the same time as the last positive cash flow is received from running the mine.The required return is 13% pa. All dollar figures above and below are in millions. The NPV of this project is:Question 10Select one:a.3,817.19b.2,989.42c.−2,989.42c.-1,482.81d.-1,515.3e.−1,515.3e.-1,516.61

...expand
🧐 Not the exact question you are looking for?Go ask a question

Solution

To calculate the Net Present Value (NPV), we need to discount each cash flow to the present and then sum them up. The formula for NPV is:

NPV = ∑ [Ct / (1+r)^t] - C0

where: Ct = net cash inflow during the period t r = discount rate t = number of time periods C0 = total initial investment costs

Let's break down each cash flow:

  1. The initial cost to prepare and build the mine and facilities is -$4,500 at time zero (t=0). This is our C0.

  2. The positive cash flows from running the mine are $500 paid annually 40 times, from t=3 to t=42. We need to calculate the present value of these cash flows.

  3. The clean-up cost at the end of the project is -$800 at t=42. We need to calculate the present value of this cash flow.

Let's calculate:

  1. The present value of the positive cash flows:

PV = 500∗[(1−(1+0.13)−40)/0.13]∗(1+0.13)−2=500 * [(1 - (1 + 0.13)^-40) / 0.13] * (1 + 0.13)^-2 = 2,989.42 million

  1. The present value of the clean-up cost:

PV = -800/(1+0.13)42=−800 / (1 + 0.13)^42 = -1.52 million

Now, we can calculate the NPV:

NPV = -4,500+4,500 + 2,989.42 - 1.52=−1.52 = -1,512.10 million

So, the closest answer is (d) -$1,515.3 million.

This problem has been solved

Similar Questions

NPV Calculate the net present value (NPV) for the following 20-year projects.Comment on the acceptability of each. Assume that the firm has an opportunity costof 14%.a. Initial investment is $10,000; cash inflows are $2,000 per year.b. Initial investment is $25,000; cash inflows are $3,000 per year.c. Initial investment is $30,000; cash inflows are $5,000 per year.

Continue considering Firm UVW. Suppose Firm UVW is considering investing in a new projectof urban development. The cost of the project is $5 Millions of USD. Firm UVW expects thatthe non-incremental yearly cash flows from the project are $1.5 Million of USD for the nextfive years; e.g. that is $1.5 Million of USD each year. Using the calculated WACC in theprevious question, what is the Net Present Value (NPV) of the project? Note: Express youranswers in strictly numerical terms. For example, if the answer is five million dollars, write5000000 as an answer.

Calculate the NPV of a $100,000 investment project with cash inflows of $30,000 in year 1, $50,000 in year 2, and $80,000 in year 3, 120,000 in year 4. The cost of capita is 7%

A farmer sows a certain crop. It costs $240,000 to buy the seed, prepare the ground, and sow the crop. In one year's time it will cost $93,200 to harvest the crop. If the crop will be worth $350,000, and the interest rate is 7%, what is the net present value (NPV) of this investment?Question 10Answera.$240,000b.$567,103c.$87,103d.$0

Takoda is the financial advisor for his company and is considering the purchase of excavation equipment which will cost $66,000.The purchase of this equipment is expected to save his company $6,828 at the end of every year for 12 years.At the end of the 12 years, he expects the excavation equipment to have a residual (inflow) value of $15,800. The company requires a 5.8% rate of return.Round PV to the nearest cent. Round NPV to the nearest whole number. 1) What is the Net Present Value (NPV) of this equipment investment?

1/3

Upgrade your grade with Knowee

Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.