Reference no: EM133115669

Task:

A mining Corporation discovered a new gold vein in the Himalayan Mountains. The Corporation has to decide whether to mine the deposit or leave it. The most cost-effective method of mining gold is sulfuric acid extraction. The management of the company estimated that the mining equipment will cost them RM900,000 and the installation cost for the equipment would be RM165,000. The net cash flows of the gold mined is estimated to RM350,000 each year over the five years life of the vein. The cost of capital for this project is 14%. Assume that all the cash flows are received at the end of each year.

You are required to:

1. Calculate NPV and IRR of the Project?
2. Calculate NPV of the project for the following changes:
   1. The equipment cost is increased by 10%
   2. The net cash flows are decreased by 10%.
   3. The cost of capital is increased to 18%
3. Determine the most significant factor (variable).

Hint:

You need to calculate NPV of the project for each scenario and see that how it changes with the change in the associated variables.

Note to Remember

It is wise for you to include related theory that is being discussed in the class in order to give you a guide to smooth out your analysis and findings.

Students should include the steps to solve NPV and IRR through both financial calculator and excel function. (You may insert picture to support your analysis)