Question

4. A mining company is considering buying or renting a drill rig The cost data for owning the asset are as follows. Purchase price, $24,000; service life, 4 years, salvage value, $1,800; fixed operating costs, $9 200 per year variable costs. $120 for each day the rig is used. The total cost of hiring the rig is $225 per day With the money worth 14.7 %, determine the minimum number of days per year the rig must be needed to justify its purchase (10 A mining company is evaluating the economics of installing a new.compressor that costs US$250,000 to satisfy gas compression requirements for the mine and save 160.000 litres of diesel per year compared to the present operating costs. The saved fuel is currently being purchased at $1.00 per liter and compressor life is estimated to be 10 years with zero salvage value. Assume compressor maintenance costs will be exactly offset by increased sales revenues due to increased gas production to other compressors on the mine The effective income tax rate is 50% and minimum hurdle rate = 12% after tax Use the Discounted Cash flow rate of return (DCFROR) and NPV analysis to determine if it is economical to buy the new compressor (15)

Answer 1

betuen Break even A) To Calulato We cost cort & qudl audume both ubst et the days he n, no Purchase price 2400D Cost (12 tost (A) 9200 lays 120 Yu t0tal 4320 9200t120 x PYAF@1217 2.272 r 4yrs 26422.4t344.67 Satwage S1860 O-5 78 PHAF 1040.4 2) Total 424000 t26422.4 +344.6yx10Yo.y 4938 2 t 344.64K x PuAR@ ry.F, $225 7 dayc 225XX 2.812 646.2 n Cost

646.2 49382 t 34Y.64 1634 days t6 days 164 dayc days Minimum of compresor $2,5 Cost Purchae Qenas Sarng per year P16o00o Hrs 160D00 Sol. Jax 86υυν savinys $8υσυ Ncd () AAFtoy a 24/. 3.68 2 rate ,as 294560 Net saungs 294 S60 250000 44560 bry Ps vesommende to the compreor It