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Copperhead Resources Corp. is a Wyoming natural resources company. The managers are considering buying the rights...

Copperhead Resources Corp. is a Wyoming natural resources company. The managers are considering buying the rights to property that has strong potential for copper production from an open pit mine. Managers project the following net cash flows ($ millions):

Year 1: $0

Year 2: $0

Year 3: $12

Year 4: $30

Year 5: $35

Year 6: $18

After year 6, the copper mine will be played out and not profitable to continue mining.

Based on the risk of this project, the managers believe that an appropriate annual discount rate is 11%. What is the value of this project, based on this discount rate?

Express your answer in $ millions to 3 decimal places. (For example, type “10” for “$10 million” or “$10,000,000”; or 11.253 for “$11.253 million” or “$11,253,000”.)

Solutions

Expert Solution

The value of the project is discounting the future cash flows at 11%

Year Cash inflows PVF@11% Present value
1 0 0.9009 0
2 0 0.8116 0
3 12 0.7312 8.7744
4 30 0.6587 19.761
5 35 0.5934 20.769
6 18 0.5346 9.6228
58.9272

The value of the project is $ 58.9272 million expressing as $5,89,27,200

Note: PVF @ 11% is being calculated as

PVF(11%, 1year) = 1/1.11

PVF (11%, 2nd year) = 1/(1.11)2

PVF(11%,3rd year) = 1/ (1.11)3

PVF(11%,4th year) = 1/(1.11)4

PVF(11%, 5th year) = 1/(1.11)5

PVF(11%, 6th year) = 1/(1.11) 6

jeff jeffy answered 2 years ago
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