The Outback Mining Company has constructed a town at Big Bore, near the site of a rich mineral discovery in a remote par

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The Outback Mining Company has constructed a town at Big Bore,
near the site of a rich mineral discovery in a remote part of
Australia. The town will be abandoned when mining operations cease
after an estimated 10-year period. The following estimates of
investment costs, sales and operating expenses relate to a project
to supply Big Bore with meat and agricultural produce over the
10-year period by developing nearby land: • Investment in land is
$1 million, farm buildings $200,000, and farm equipment $400,000.
The land is expected to have a realizable value of $1 million in 10
years’ time. The salvage value of the buildings after 10 years is
expected to be $50,000. The farm equipment has an estimated life of
10 years and a zero salvage value. • An investment of $250,000 in
current assets is required at startup. This working capital will be
recovered at the termination of the venture. • Annual cash sales
are estimated to be $2.48 million. • Annual cash operating costs
are estimated to be $2.2 million. What is the NPV of the project,
given that the required rate of return is 10% p.a.? The applicable
tax rate is 30%. Note that investments in land and working capital
are not depreciable. Assume that buildings and equipment are
depreciable straight line over their useful lives. a. -$35.89m b.
-$43.1m c. +56.78m d. + 49.22m
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