Question 1.
a. What will $5500 amount to in 15 years at 8.1% interest?
b. If interest is compounded at 4% compounded continuously what would be the equivalent single annual interest rate?
c. What is the present value of $30,000 due in 10 years' time at 5.5% compound interest?
Question 2.
a. The power cost of running a pump is $5500 per year; determine the present value of this expenditure over 10 years at 9% interest.
b. A machine is purchased for $70,000 and costs $25,000 per year in electrical and maintenance costs. The estimated life is 5 years and interest is at 4% compound. What is the total annual cost of this machine?
c. What us meant by the term payback period?
d. What is meant by the term discounted cash flow?
e. What is the discounted cash flow rate of return?
f. What is a bankable mining study?
Question 3. Maintenance costs for a new piece of mining equipment are expected to be $20,000 in the first year, rising by $2,500 per year thereafter. The machine has an expected life of 10 years and interest is 8% annually. To evaluate bids from outside firms for a maintenance contract you need to know the present value of these costs. What is this value?
Question 4. What is meant by the term cash flow? For the table overleaf determine the yearly cash flows and the total cash flow. If a discounting rate of 12% is used what is the Net Present Value?
|
Year
|
0
|
1
|
2
|
3
|
4
|
5
|
6
|
|
Revenue
|
|
|
170
|
200
|
230
|
260
|
290
|
|
Operating cost
($1000)
|
|
|
-40
|
-50
|
-60
|
-70
|
-80
|
|
Capital cost
($1000)
|
-200
|
-100
|
|
|
|
|
|
|
Tax cost
($1000)
|
|
|
-30
|
-40
|
-50
|
-60
|
-70
|
|
Project
cash flow
|
|
|
|
|
|
|
|
Question 5. A coal stripping company currently operates three dozers for reclamation work. To reduce costs three alternatives are being considered for the future: rebuild the present equipment, purchase new dozers and employ a contractor. Details of the alternatives are given overleaf:
Rebuild Purchase Contractor
No of units required Initial cost per unit
3 2 none
$360,000 $420,000 $0
Annual costs per unit:
Maintenance $140,000 $85,000
|
Labour
|
$240,000
|
$160,000
|
$2,000,000
|
|
Supplies
|
$58,000
|
|
$42,000
|
|
Life
|
8 years
|
8 years
|
8 years
|
|
Salvage value per
unit
|
$0
|
$120,000
|
$0
|
If interest is 10% annually, which alternative should be selected?
Question 6. A Truck is purchased for $2,000,000 and is planned to have an operating life of 5 years working 5,500 hours per year. What is the hourly owning cost of this machine, assuming the company requires a 10% return on investment, using
a) The average investment method
b) The equivalent lease cost method
Question 7. Undertake both a declining balance and straight-line depreciation of an item of capital expenditure of $150 million. The declining balance depreciation rate is 30%, effective tax rate is 35%, cost of capital is 10% and straight-line depreciation rate is 20%.
Question 8. The table below details three possible alternatives to replace existing machinery. The life of each alternative is 5 years. Assuming the cost of capital is 10%, depreciation for tax purposes of capital expenditure is allowable at 30% on a declining balance basis and the effective tax rate is 45%. Determine the preferred alternative.
|
Alternative
|
Capital
Expenditure $
|
Annual
Operating Cost $
|
Salvage value $
|
|
A
|
1,200,000
|
200,000
|
0
|
|
B
|
900,000
|
190,000
|
150,000
|
|
C
|
2,300,000
|
110,000
|
300,000
|
Question 9. A large rear dump truck working in a coal mining operation under good conditions has a current purchase price of $ 3,000,000, including $ 400,000 for the initial cost of six tyres. What is the net capital cost?
If the repair factor is 0.25 x 10-4 and for good conditions the job factor is 0.75, determine the estimated repair cost per operating hour?
If major overhaul costs are estimated at 10% of the net capital cost and this occurs every 20,000 hours determine the major overhaul cost per operating hour?
If maintenance labour costs are $100/ person hour, a single maintenance person is required and the maintenance labour requirement is estimated at 0.8 person hours per operating hour determine the maintenance labour cost?
Determine the total maintenance cost?
Question 10. An excavator has a purchase price of $6,000,000, has a rating of 1,900 kW, an estimated life of 5 years an annual operating usage of 5,000 hours. A return on investment of 10% is required. For the following conditions determine the owning cost, total operating and total cost per operating hour for the excavator.
a) Fuel cost $1.00/l, load factor 0.5, fuel consumption of 0.3 l/kW per hour
b) Lubrication @ 25% of fuel cost
c) Wear cost allowance = $ 30 per hour
d) Repair factor of 0.25 x 10-4, job factor of 1
e) Major overhaul every 10,000 hours, at 15% of capital cost
f) Maintenance labour costed on maintenance ratio of 1.25 hours/operating hour, personnel costing $95,000/ person year. Single operator required per shift, 2 shifts per day at an operator cost of $100,000 per person year
Question 11. For the project outlined in the Table determine the Net Present Value of the project. The cost of Capital is 10%.
|
Year
|
Year
|
Year
|
|
Capital Expenditure $ 000's
|
Capital Expenditure $ 000's
|
Capital Expenditure $ 000's
|
|
Operating Expenditure $ 000's
|
Operating Expenditure $ 000's
|
Operating Expenditure $ 000's
|
|
Revenue
|
Revenue
|
Revenue
|
|
$ 000's
|
$ 000's
|
$ 000's
|
|
1
|
1
|
1
|
|
63,000
|
63,000
|
63,000
|
|
1,000
|
1,000
|
1,000
|
|
5,500
|
5,500
|
5,500
|
|
2
|
2
|
2
|
|
1,100
|
1,100
|
1,100
|
|
8,400
|
8,400
|
8,400
|