Reference no: EM132546461

Consider a quarry for purchase for $3.8x106. The current production and cost data have been established as follows:

Tonnes of stones produced per year 650,000 Life of quarry 5 years Sales of stones $6/t Mining cost $1.20/t Crushing and screening cost $0.75/t Transport cost to market (contracted) $1.35/t General plant expenses $1.35/t

The above costs may be summarised as follows:

Wages and salaries 42% Payroll overhead 20% Power 4% Parts and supplies 10% Explosives 9% Fuel 6% Taxes, insurance, miscellaneous 9% Develop a cash flow model for the quarry operation. Assume 30% company tax and a minimum acceptable rate of return (MARR) of 12%.

Use straight line depreciation. Determine the sensitivity of the project's NPV with:

• Cost of the quarry

• Price of stones

• Company tax

• Cost of capital (interest rate) Comment on your results.