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Short answer question. The cash flow associated with a strip mining operation is expected to be...

Short answer question. The cash flow associated with a strip mining operation is expected to be £200,000 in year 1, £180,000 in year 2 and amounts decreasing by £20,000 per year to year 8 when it is assumed the mine will be exhausted. What is the present value of the mine? Assume interest is 7%. Show your working.

Solutions

Expert Solution

£   8,18,480.94

Working:

Year Cash flow Discount factor Present Value
a b c=1.07^-a b*c
1 £        2,00,000                     0.935 £   1,86,915.89
2 £        1,80,000                     0.873 £   1,57,218.97
3 £        1,60,000                     0.816 £   1,30,607.66
4 £        1,40,000                     0.763 £   1,06,805.33
5 £        1,20,000                     0.713 £      85,558.34
6 £        1,00,000                     0.666 £      66,634.22
7 £            80,000                     0.623 £      49,819.98
8 £            60,000                     0.582 £      34,920.55
Total £   8,18,480.94

jeff jeffy answered 2 years ago
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