Can Somone explain how to get the Net present Value Please! Renfree Mines, Inc.,

Question

Can Somone explain how to get the Net present Value Please!

Renfree Mines, Inc., owns the mining rights to a large tract of land in a mountainous area. The tract contains a mineral deposit that the company believes might be commercially attractive to mine and sell. 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:

*Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth.

The mineral deposit would be exhausted after ten years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company’s required rate of return is 16%. (Ignore income taxes.)

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Determine the net present value of the proposed mining project. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answer to the nearest whole dollar.)

Renfree Mines, Inc., owns the mining rights to a large tract of land in a mountainous area. The tract contains a mineral deposit that the company believes might be commercially attractive to mine and sell. 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:

Explanation / Answer

Net present value is calculated as follws:

Present value of Inflows - Present value of outflows

Present value of inflows

= Present value of annual net cash receipts + Present value of salvage value of equipment in ten years + Present value of working capital released at the end of 10 years

= 335,000/1.16 + 335,000/(1.16)2 + 335,000/(1.16)3+335,000/(1.16)4+335,000/(1.16)5+335,000/(1.16)6+335,000/(1.16)7+335,000/(1.16)8+335,000/(1.16)9+335,000/(1.16)10+100,000/(1.16)10+240,000/(1.16)10

= $ 1,696,204

Present value of outflows

= Cost of equipment required + Working capital required + Present value of Cost of road repairs in three years

= $ 790,000 + 240,000 + 69,000/(1.16)3

= $ 1,074,205

Net present value

= $ 1,696,204 - $ 1,074,205

= $ 621,999

So, net present value of the project is $ 621,999

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.