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If the appropriate interest rate is the value of this mining operation is closest​ to:__________

1 Answer

2 votes

Answer: -$66,667

Step-by-step explanation:

As this project is expected to yield returns forever, it is a perpetuity.

The Present Value is calculated as;

= Payment per year / (Yield - growth rate)

Mine will decline at 8% per year however so this will need to be accounted for;

= 15,000/ ( 10% - (-8%))

= $83,333.33

The Net Present Value is;

= Present value of cash inflows - Initial investment

= 83,333.33 - 150,000

= -$66,666.67

= -$66,667

User Deepam Gupta
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