Tangshan Mining Company Is Considering Investing in a New Mining

question 99

Essay

Tangshan Mining Company is considering investing in a new mining project. The firm's cost of capital is 12 percent and the project is expected to have an initial after-tax cost of $5,000,000. Furthermore, the project is expected to provide after-tax operating cash flows of $2,500,000 in year 1, $2,300,000 in year 2, $2,200,000 in year 3, and ($1,300,000) in year 4?
(a) Calculate the project's NPV.
(b) Calculate the project's IRR.
(c) Should the firm make the investment?

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Definitions:

Carrying Costs

Expenses associated with holding inventory, such as storage, insurance, and opportunity costs, until it is sold or used in production.

Annual Requirements

The total quantity or volume of resources, goods, or services needed by an organization or project over the course of a year.

Pull System

A method of production control where downstream activities signal their needs to upstream activities, promoting just-in-time production and minimizing inventories.

Production Management

The process of planning, organizing, leading, and controlling the production of goods and services, focusing on efficient and effective production methods.