You are the CFO of Midas Mining Ltd and the company is looking to expand its mining operations. Your staff have narrowed it down to two (2) projects, with the cash flows presented in the table below. However, given the substantial cash outlay, your company can only choose one of the projects (A or B).

Information                Project A                  Project B 

Cost                         $5 550 000             $6 640 000 

Future Cash Flows

 Year 1                       1 230 000                  2 830 000

Year 2                        2 210 000                   1 300 000 

Year 3                       1 200 600                   1 750 000

Year 4                       1 150 000                       1 180 000

Year 5                       1 120 000                  1 150 000

 Required:

 a) Perform a project evaluation, using the Net Present Value (NPV) method. The prevailing discount rate is 12%. (2.5 x 2 = 5 marks)

 b) Identify which project (if any) should be accepted by Midas Mining Ltd. (1 mark)

Answer rating: 100% (QA)

Project Evaluation using Net Present Value NPV a NPV Calculation Project A Year 05550000 initial cos... View the full answer