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Exercise 3

n
Year
Production Capacity (tons)
Revenue (per ton)
Production Cost (per ton)

0
2002

1
2003

2
2004

INFLOW:
Production Revenue
OUTFLOW:
Construction Cost
Production Cost
Fixed Cost
Remediation Cost
NET CASH FLOW

R 300 000 000.00

R 300 000 000.00

3
2005
1 500 000
R 450.00
R 120.00

4
2006
1 500 000
R 427.50
R 124.80

5
2007
1 500 000
R 406.13
R 129.79

6
2008
1 500 000
R 385.82
R 134.98

7
2009
1 500 000
R 366.53
R 140.38

8
2010
3 000 000
R 348.20
R 146.00

9
2011
4 500 000
R 330.79
R 151.84

R 675 000 000.00

R 641 250 000.00

R 609 187 500.00

R 578 728 125.00

R 549 791 718.75

R 1 044 604 265.63

R 1 488 561 078.52

R 180 000 000.00


R 50 000 000.00

R 187 200 000.00


R 50 000 000.00

R 194 688 000.00


R 50 000 000.00

R 800 000 000.00


R 202 475 520.00
R 50 000 000.00

R 800 000 000.00


R 210 574 540.80
R 50 000 000.00

R 437 995 044.86


R 90 000 000.00

R 683 272 269.99


R 90 000 000.00

R 710 603 160.79


R 90 000 000.00

R 739 027 287.22


R 90 000 000.00

R 768 588 378.71


R 90 000 000.00

R 799 331 913.86


R 90 000 000.00

R 831 305 190.41


R 90 000 000.00

R 864 557 398.03


R 90 000 000.00

R 899 139 693.95 R 935 105 281.71


R 90 000 000.00 R 90 000 000.00
R 700 000 000.00
R 50 378 024.69 -R 737 563 449.00

R 300 000 000.00

10
2012
4 500 000
R 314.25
R 157.91

11
2013
4 500 000
R 298.54
R 164.23

12
2014
4 500 000
R 283.61
R 170.80

13
2015
4 500 000
R 269.43
R 177.63

14
2016
4 500 000
R 255.96
R 184.73

15
2017
4 500 000
R 243.16
R 192.12

17
2019
4 500 000
R 219.45
R 207.80

R 1 414 133 024.59 R 1 343 426 373.36 R 1 276 255 054.69 R 1 212 442 301.96 R 1 151 820 186.86 R 1 094 229 177.52 R 1 039 517 718.64 R 987 541 832.71

-R 300 000 000.00

-R 300 000 000.00

-R 300 000 000.00

R 445 000 000.00

R 404 050 000.00

R 364 499 500.00

-R 473 747 395.00

-R 510 782 822.05

R 516 609 220.76

R 715 288 808.53

R 613 529 863.80

R 514 399 086.14

R 417 666 675.98

R 323 110 388.10

R 230 514 996.45

R 139 671 779.49

5.0545
1.0000

4.5950
0.8696

4.1772
0.7561

3.7975
0.6575

3.4523
0.5718

3.1384
0.4972

2.8531
0.4323

2.5937
0.3759

2.3579
0.3269

2.1436
0.2843

1.9487
0.2472

1.7716
0.2149

1.6105
0.1869

1.4641
0.1625

1.3310
0.1413

1.2100
0.1229

1.1000
0.1069

1.0000
0.0929

R 50 378 024.69

FV @ r (10%)
PV @ k (15%)
FWn+

R 445 000 000.00

R 404 050 000.00

R 364 499 500.00

R 516 609 220.76

R 715 288 808.53

R 613 529 863.80

R 514 399 086.14

R 417 666 675.98

R 323 110 388.10

R 230 514 996.45

R 139 671 779.49

PWn-

-R 300 000 000.00

-R 300 000 000.00

-R 300 000 000.00

-R 473 747 395.00

-R 510 782 822.05

+
+
FWT = FWn

R 4 734 718 343.95

PWT- = PWn+

-R 2 622 093 666.05

ERR = (FWT+ / PWT-)^(1/N)-1

16
2018
4 500 000
R 231.00
R 199.81

3.54%

Answer:
The external rate of return (3.54%) is less than the MARR of 10% therefore the investment should not be considered.

0 -R 737 563 449.00