Your mining company is considering an expansion of operations into iron ore. Your engineers surveyed a particular piece of land three weeks ago (the survey cost $45,000) and concluded the following:

• You can extract 2,500 tons of iron ore per year.
• There are 10,000 tons of iron ore underneath this land. Once all the ore has been extracted, the project will cease to produce any revenues.
• The price of ore will remain constant for the next 4 years. Currently, ore sells for $120 per ton.
• The operating cost to extract the ore will be $80 per ton for the next 4 years.
• We can invest in the equipment for this project right now for $100,000.
• The equipment will be fully depreciated over a period of four years using the straight-line method.
• At the end of year 4, we can sell the equipment involved in the project for $25,000
• The expansion requires additional working capital (NWC) of $15,000 from the start (at time t=0) until the end of year 4. At time t=4, working capital decreases to $0.
• The tax rate is assumed to be 35%. Your cost of capital is 11%.

Please provide the Free Cash Flow for each year of this project (times t=0 through t=4) and compute the project’s NPV.

T = 0 Cash Flow: ___________

T = 1 Cash Flow: ___________

T = 2 Cash Flow: ___________

T = 3 Cash Flow: ___________

T = 4 Cash Flow: ___________

Project NPV: ___________

Answer rating: 100% (QA)

To calculate the Free Cash Flow FCF for each year and the projects Net Present Value NPV we need to consider the various cash flows associated with th... View the full answer