Compute net present value of the new mine

Assignment Help Microeconomics
Reference no: EM13921871

A mining company is considering to open a new coal mine. The company has collected the following information about the cash flows associated with the mine:

Equipment needed for new mine

$900,000

Working capital required for new mine

$210,000

Expected annual cash inflow from the sale of coal

$750,000

Annual cash expenses associated with the new mine

$500,000

Road repairs after 5 years

$105,000

The coal in the mine would be exhausted in 15 years. The equipment would be sold for a salvage value of $250,000 at the end of 15-year period. The company uses straight line method of depreciation and does not take into account the salvage value while computing depreciation for tax purposes. The tax rate of the company is 30%.

Required:

1. Compute net present value of the new mine assuming a 15% after tax cost of capital.

2. Should the mine be opened?

Reference no: EM13921871

Questions Cloud

Explain process by which the banking system creates money : Assume that the bank holds no excess reserves and that the required reserve ratio equals 10% of deposits. If a customer deposits $5,000, what would be the total increase in checking account balances throughout all banks? Explain the process by whi..
Prepare the journal entries to record issuing the bonds : Prepare the journal entries to record issuing the bonds and any necessary journal entries for 2013 and 2014. Post the journal entries to T accounts.
Do you think the owners argument is correct and explain : The inequity of players across teams would make the sport less interesting to fans and thus destroy the league. Do you think the owners' argument is correct? Explain.
Single queue for customers : Donna would set up a single queue for customers who prefer human check-in clerks. This would be served by the five clerks, although Donna is hopeful that the machine will allow a reduction to four.
Compute net present value of the new mine : Compute net present value of the new mine assuming a 15% after tax cost of capital. Should the mine be opened?
Do you think that the membership is more likely to vote : Do you think that the membership is more likely to vote in favor of the proposal at Locust Hill or for the one at Salt Lake Country Club? Explain.
Brown manufacturing : Brown Manufacturing is trying to determine the equivalent units for conversion costs with 5,000 units of ending work in process at 80% completion and 40,000 physical units that are 100% complete as to materials
How to create a legally binding contract : The agreement will be for employees to sign who wish to further their education while working for your company. Be creative, yet professional. The following components must be present in your contract. For each element you must demonstrate   your ..
Research issues in strategic human resource development : Imagine that you are a member of the HR department of a small retail company and upper management has asked you to create a new employee customer service training class for all new employees.

Reviews

Write a Review

Microeconomics Questions & Answers

  Banks are operating with safety and soundness

How does the government assure the public that (1) Banks are operating with "safety and soundness" (2) that their deposits are protected and (3) that banks are not taking excessive risk in lending and investing their funds?

  Empirical demand function and forecasting

Empirical Demand Function and Forecasting

  What is the mixed strategy equilibrium

Explain briefly what English. Dutch, and sealed bid auctions are why the bidding strategies for English and 2' price sealed bid auctions differ from those for Dutch and 1" price sealed bid auctions.

  Find the nash equilibriums try to set this up so it looks

there are three major network affiliate television stations in hicksville rbc cbc and mbc. all three stations have the

  Discuss monopoly to provide a brief overview of company

Discuss the current monopoly to provide a brief overview of the company. How did the monopoly arise? Did the monopoly increase barriers to entry? Does the company behave like a monopoly or more like a competitive firm?

  Economic profits do economic profits attract new firms into

do economic profits attract new firms into an industry? how do economic profits attract new firms

  One of the elements of monopolization

One of the elements of monopolization is a. monopoly pricing  b. having a monopoly

  Critically analyze the effectiveness of various approaches

i critically examine the effectiveness of various approaches that may be used to reduce macroeconomic instability. your

  Calculate revenue variation with quantity

The marketing manager has estimated the company’s demand curve with the equation P=3000 – 40Q. To develop a deeper understanding of pricing and quantity to be produced,complete the analyses.

  What was hopewell culture and how did it differ from adena

What is the importance of having a reasonably accurate demographic analysis of pre-Columbian populations and how does it affect the way the America's were settled?

  How would cost fit into their explanations

Some psychologists see people's behavior as determined largely by family history and external environmental conditions. How would "cost" fit into their explanations?

  Favor of active involvement in the economy and who opposes

Tax cuts, spending cuts, changes to the money supply by the Federal Reserve... all these are examples of the fiscal policy and monetary policy tools used to change the current condition of the economy. What is being done? Has it been affective?..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd