Question 1. Table 1 details a proposed gold project.
|
Year
|
0
|
1
|
2
|
3
|
4
|
5
|
|
Production (oz)
|
|
30,000
|
50,000
|
50,000
|
50,000
|
50,000
|
|
Operating expenses thousand $
|
|
10,598
|
17,762
|
19,339
|
21,073
|
20,882
|
|
Capital expenditure thousand $
|
15,000
|
|
|
|
|
|
Table 2 Base data for gold project cash flow calculation
|
Item
|
Value
|
|
Initial capital cost
|
$ 15,000,000
|
|
Project life
|
5 years
|
|
Depreciation rate for tax purposes
|
27.5% declining balance method
|
|
Tax rate
|
35%
|
|
Discount rate
|
15%
|
Part 1
For a gold price of $1,000/oz. determine the following:
a) Operating yearly revenue
b) Operating yearly profit/loss
c) Tax depreciation yearly
d) End of year written down value for tax purposes
e) Salvage value in year 5
f) Yearly taxable profit
g) Income tax payable in each year
h) Yearly after tax profit/loss
i) Yearly net cash flow
j) Yearly discounted net cash flow
k) Net present value for the project
Part 2
Repeat part 1 for a gold price of $1,200/oz.
What is the impact on net present value?
Part 3
Using a gold price of $1,000/oz. as per part 1.
The following differential inflation adjustments apply:
- General inflation rate 10%
- Product selling price 4%
- Labour component of operating costs 11%
- Other components of operating costs 9%
- Capital equipment 9%
In addition it may be assumed that labour makes up 55% of the unescalated operating expenditure, other 45%.
Determine the inflation adjusted Net present value
Question 2. A system of mining requires 3 operators at any one time. The mine operates on a three shift basis per day, 6 days per week. Allowing for availability the mining system operates 5,000 hours per year. Each worker costs $55,000 per year. Assuming all personnel are required on service shifts, an absenteeism rate of 5%, determine the hourly cost of labour.
Question 3. For the following projects, determine the payback period.
|
|
Cash flow $1000
|
Cash flow $1000
|
Cash flow $1000
|
Cash flow $1000
|
|
Year
|
Alternative A
|
Alternative B
|
Alternative C
|
Alternative D
|
|
0
|
-1,200
|
-1,000
|
-1,000
|
-1,000
|
|
1
|
200
|
300
|
500
|
400
|
|
2
|
300
|
300
|
300
|
300
|
|
3
|
500
|
400
|
200
|
200
|
|
4
|
200
|
200
|
200
|
100
|
|
5
|
0
|
200
|
200
|
500
|
|
6
|
0
|
200
|
200
|
500
|
Question 4. For the following project determine the payback period and the rate of return.
|
Year
|
Cash flow $
|
|
1
|
-10,000,000
|
|
2
|
-5,000,000
|
|
3
|
1,000,000
|
|
4
|
4,000,000
|
|
5
|
5,000,000
|
|
6
|
5,000,000
|
|
7
|
5,000,000
|
|
8
|
4,000,000
|
|
9
|
2,000,000
|
|
10
|
1,000,000
|
Question 5. An investment of $ 5,000,000 is expected to generate cash flows of $ 2,500,000 over a period of 6 years. The cost of capital is 8%, determine the Present Value Ratio.