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SECTION A: COMPULSORY QUESTION ONE next 10 years. A K50,000 at the en Seth Wandi, the owner of Wandi Gold Mining, is evaluating a new gold mine in Namibia 10 percent Kasuba Zulu, the company's geologist, has just finished his analysis of the mine site. He ver) has estimated that the mine would be productive for eight years, after which the gold would be completely mined. Kasuba has taken an estimate of the gold deposits to Samantha Mwamba, the company's financial officer. Samantha has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine. Samantha has used the estimates provided by Kasuba to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost K400 million today, and in the eighth year it will have a K35 million in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the following table. Wandi Gold Mining has a 12 percent required return on all of its gold mines. The company expects the following cash inflows. APE Year 1 2 3 4 5 6 7 8 Cash Inflow 85 90 140 180 195 130 95 60 (K'm) a) Calculate the payback period of the proposed mine b) Calculate the internal rate of return of the proposed mine c) Calculate the net present value of the proposed mine d) Based on your analysis, should the company open the mine? (3 Marks) (10 Marks) (8 Marks) (4 Marks) [TOTAL: 25 MARKS] 85 Page 2 of 15 200 515 85 85 780

SECTION A: COMPULSORY QUESTION ONE next 10 years. A K50,000 at the en Seth Wandi, the owner of Wandi Gold Mining, is evaluating a new gold mine in Namibia 10 percent Kasuba Zulu, the company's geologist, has just finished his analysis of the mine site. He ver) has estimated that the mine would be productive for eight years, after which the gold would be completely mined. Kasuba has taken an estimate of the gold deposits to Samantha Mwamba, the company's financial officer. Samantha has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine. Samantha has used the estimates provided by Kasuba to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost K400 million today, and in the eighth year it will have a K35 million in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the following table. Wandi Gold Mining has a 12 percent required return on all of its gold mines. The company expects the following cash inflows. APE Year 1 2 3 4 5 6 7 8 Cash Inflow 85 90 140 180 195 130 95 60 (K'm) a) Calculate the payback period of the proposed mine b) Calculate the internal rate of return of the proposed mine c) Calculate the net present value of the proposed mine d) Based on your analysis, should the company open the mine? (3 Marks) (10 Marks) (8 Marks) (4 Marks) [TOTAL: 25 MARKS] 85 Page 2 of 15 200 515 85 85 780

Financial Management: Theory & Practice
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter19: Lease Financing
Section: Chapter Questions
Problem 6P: Big Sky Mining Company must install 1.5 million of new machinery in its Nevada mine. It can obtain a...
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SECTION A: COMPULSORY QUESTION ONE next 10 years. A K50,000 at the en Seth Wandi, the owner of Wandi Gold Mining, is evaluating a new gold mine in Namibia 10 percent Kasuba Zulu, the company's geologist, has just finished his analysis of the mine site. He ver) has estimated that the mine would be productive for eight years, after which the gold would be completely mined. Kasuba has taken an estimate of the gold deposits to Samantha Mwamba, the company's financial officer. Samantha has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine. Samantha has used the estimates provided by Kasuba to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost K400 million today, and in the eighth year it will have a K35 million in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the following table. Wandi Gold Mining has a 12 percent required return on all of its gold mines. The company expects the following cash inflows. APE Year 1 2 3 4 5 6 7 8 Cash Inflow 85 90 140 180 195 130 95 60 (K'm) a) Calculate the payback period of the proposed mine b) Calculate the internal rate of return of the proposed mine c) Calculate the net present value of the proposed mine d) Based on your analysis, should the company open the mine? (3 Marks) (10 Marks) (8 Marks) (4 Marks) [TOTAL: 25 MARKS] 85 Page 2 of 15 200 515 85 85 780
Transcribed Image Text:SECTION A: COMPULSORY QUESTION ONE next 10 years. A K50,000 at the en Seth Wandi, the owner of Wandi Gold Mining, is evaluating a new gold mine in Namibia 10 percent Kasuba Zulu, the company's geologist, has just finished his analysis of the mine site. He ver) has estimated that the mine would be productive for eight years, after which the gold would be completely mined. Kasuba has taken an estimate of the gold deposits to Samantha Mwamba, the company's financial officer. Samantha has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine. Samantha has used the estimates provided by Kasuba to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost K400 million today, and in the eighth year it will have a K35 million in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the following table. Wandi Gold Mining has a 12 percent required return on all of its gold mines. The company expects the following cash inflows. APE Year 1 2 3 4 5 6 7 8 Cash Inflow 85 90 140 180 195 130 95 60 (K'm) a) Calculate the payback period of the proposed mine b) Calculate the internal rate of return of the proposed mine c) Calculate the net present value of the proposed mine d) Based on your analysis, should the company open the mine? (3 Marks) (10 Marks) (8 Marks) (4 Marks) [TOTAL: 25 MARKS] 85 Page 2 of 15 200 515 85 85 780
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