Question: Glencore Plc has decided to explore new mining shafts in the Western Cape area. It has two main projects it would like to initiate in
Glencore Plc has decided to explore new mining shafts in the Western Cape area. It has two main projects it would like to initiate in Knysna. You have been tasked to explore the viability of the two projects and advise the board of directors. An initial investment of R1 million has been made. The cost of capital is 12%. The following are estimated future cash flows:
Project A
| Year | Net Cash flows (R) Project A | Net Cash flows (R) Project B |
| 1 | 100 100,00 | 250 000,00 |
| 2 | 250 500,00 | 250 500,00 |
| 3 | 125 350,00 | 125 350,00 |
| 4 | 250 000,00 | 250 000,00 |
| 5 | 128 700,00 | 100 000,00 |
| 6 | 256 789,00 | 75 650,00 |
| 7 | 300 500,00 | 85 000,00 |
| 8 | 250 000,00 | 150 000,00 |
| 9 | 100 100,00 | 300 000,00 |
| 10 | 200 500,00 | 200 500,00 |
determine the net present value?
| Project A | ||||
| Year | Net Cashflows | PVIF (12%) | PV | |
| 0 | 1,0000 | |||
| 1 | 100 100,00 | 0,8929 | ||
| 2 | 250 500,00 | 0,7972 | ||
| 3 | 125 350,00 | 0,7118 | ||
| 4 | 250 000,00 | 0,6355 | ||
| 5 | 128 700,00 | 0,5674 | ||
| 6 | 256 789,00 | 0,5066 | ||
| 7 |
| 0,4523 | ||
| 8 | 250 000,00 | 0,4039 | ||
| 9 | 100 100,00 | 0,3606 | ||
| 10 |
| 0,3220 | ||
| NPV | ||||
| Project B | ||||
| Year | Net Cashflows | PVIF (12%) | PV | |
| 0 | 1,0000 | |||
| 1 |
| 0,8929 | ||
| 2 |
| 0,7972 | ||
| 3 | 125 350,00 | 0,7118 | ||
| 4 | 250 000,00 | 0,6355 | ||
| 5 | 100 000,00 | 0,5674 | ||
| 6 | 75 650,00 | 0,5066 | ||
| 7 | 85 000,00 | 0,4523 | ||
| 8 | 150 000,00 | 0,4039 | ||
| 9 | 300 000,00 | 0,3606 | ||
| 10 | 200 500,00 | 0,3220 | ||
| NPV |
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