The L-S Mining Company is planning to open a new strip mine in western

QUESTION

The L-S Mining Company is planning to open a new strip mine in western Pennsylvania. The net investment required to open the mine is $10 million. Net cash flows are expected to be +20 million at the end of year 1 and +5 million at the end of year 2. At the end of year 3, L-S will have a net ahs outf
a. Years 5% 10% 15% 20% 30% 71% 80% 1 $20,000,000.00 $19,047,619.05 $18,181,818.18 $17,391,304.35 $16,666,666.67 $15,384,615.38 $11,695,906.43 $11,111,111.11 2 $5,000,000.00 $4,535,147.39 $4,132,231.40 $3,780,718.34 $3,472,222.22 $2,958,579.88 $1,709,927.84 $1,543,209.88 3 ($17,000,000.00) ($14,685,239.18) ($12,772,351.62) ($11,177,775.95) ($9,837,962.96) ($7,737,824.31) ($3,399,856.53) ($2,914,951.99) $8,897,527.26 $9,541,697.97 $9,994,246.73

93 $10,605,370.96 $10,005,977.75 $9,739,369.00 NPV ($1,102,472.74) ($458,302.03) ($5,753.27) $300,925.93 $605,370.96 $5,977.75 ($260,631.00) b. As the cost of capital increases @ 71% the NPV is positive after while decling. c. Project is selected @20% because of positive and greater NPV as compared to 10%.

ANSWER:

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