ABC Mining has discovered a new gold deposit in the California mountains and must now decide...

 

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ABC Mining has discovered a new gold deposit in the California mountains and must now decide whether to mine the deposit. The most cost-effective way to do so is to use a method sulphuric acid extraction. However, the use of this process has environmental effects that may breach California environmental regulations and/or result in a need for additional work to restore the vegetation around the site. The company also needs to invest in new mining equipment. The management has asked you to perform a financial analysis to help them decide if it is worthwhile to pursue project. You are provided the following financial parameters: Estimated life of the gold deposit : 6 years Purchase of new equipment: $1,015,000 Equipment installation cost : Required rate of return: Expected net cashflows generated at the end of each year from the extraction and sale of the gold deposits are as follows: Year 1 $150,000 a. Year 2 $275,000 $180,000 15% Year 3 $600,000 Year 4 Year 5 $600,000 $300,000 Required: Based the financial parameters provided above, compute the following: i Payback Period ii Profitability Index iii Net Present Value iv Internal Rate of Return Year 6 $100,000 (5 marks) (5 marks) (10 marks) (10 marks) ABC Mining has discovered a new gold deposit in the California mountains and must now decide whether to mine the deposit. The most cost-effective way to do so is to use a method sulphuric acid extraction. However, the use of this process has environmental effects that may breach California environmental regulations and/or result in a need for additional work to restore the vegetation around the site. The company also needs to invest in new mining equipment. The management has asked you to perform a financial analysis to help them decide if it is worthwhile to pursue project. You are provided the following financial parameters: Estimated life of the gold deposit : 6 years Purchase of new equipment: $1,015,000 Equipment installation cost : Required rate of return: Expected net cashflows generated at the end of each year from the extraction and sale of the gold deposits are as follows: Year 1 $150,000 a. Year 2 $275,000 $180,000 15% Year 3 $600,000 Year 4 Year 5 $600,000 $300,000 Required: Based the financial parameters provided above, compute the following: i Payback Period ii Profitability Index iii Net Present Value iv Internal Rate of Return Year 6 $100,000 (5 marks) (5 marks) (10 marks) (10 marks) ABC Mining has discovered a new gold deposit in the California mountains and must now decide whether to mine the deposit. The most cost-effective way to do so is to use a method sulphuric acid extraction. However, the use of this process has environmental effects that may breach California environmental regulations and/or result in a need for additional work to restore the vegetation around the site. The company also needs to invest in new mining equipment. The management has asked you to perform a financial analysis to help them decide if it is worthwhile to pursue project. You are provided the following financial parameters: Estimated life of the gold deposit : 6 years Purchase of new equipment: $1,015,000 Equipment installation cost : Required rate of return: Expected net cashflows generated at the end of each year from the extraction and sale of the gold deposits are as follows: Year 1 $150,000 a. Year 2 $275,000 $180,000 15% Year 3 $600,000 Year 4 Year 5 $600,000 $300,000 Required: Based the financial parameters provided above, compute the following: i Payback Period ii Profitability Index iii Net Present Value iv Internal Rate of Return Year 6 $100,000 (5 marks) (5 marks) (10 marks) (10 marks) ABC Mining has discovered a new gold deposit in the California mountains and must now decide whether to mine the deposit. The most cost-effective way to do so is to use a method sulphuric acid extraction. However, the use of this process has environmental effects that may breach California environmental regulations and/or result in a need for additional work to restore the vegetation around the site. The company also needs to invest in new mining equipment. The management has asked you to perform a financial analysis to help them decide if it is worthwhile to pursue project. You are provided the following financial parameters: Estimated life of the gold deposit : 6 years Purchase of new equipment: $1,015,000 Equipment installation cost : Required rate of return: Expected net cashflows generated at the end of each year from the extraction and sale of the gold deposits are as follows: Year 1 $150,000 a. Year 2 $275,000 $180,000 15% Year 3 $600,000 Year 4 Year 5 $600,000 $300,000 Required: Based the financial parameters provided above, compute the following: i Payback Period ii Profitability Index iii Net Present Value iv Internal Rate of Return Year 6 $100,000 (5 marks) (5 marks) (10 marks) (10 marks)

Answer rating: 100% (QA)

SOLUTION a Based on the financial parameters provided above we can compute the following i Payback P... View the full answer