NPV of Gold project, Example 3, Page 189 CFA. I finding hard to understand, can anybody explain the formulae and logic? Thanks作者: mar350 时间: 2011-7-11 19:49
Summation of Discount (Price - Fixed Mining Cost) for all years back to Time 0. Subtract out sunk costs = NPV of gold mine.
Very simple concept.
Edited 1 time(s). Last edit at Thursday, May 26, 2011 at 10:43PM by Paraguay.作者: mp3bu 时间: 2011-7-11 19:49
I was a bit confused on discounting the extraction cost, thought the cost was current year so should not be discounted, but I guess I was wrong. However should not the lease rate be considered? Thanks for your response作者: strikethree 时间: 2011-7-11 19:49
You need to think of it like the NPV of any project in that you are just discounting future cash flows less the cost of starting the project in the first place. I think Paraguay meant to say you subtract initial costs not sunk costs. You don't subtract sunk costs because by definition they are costs already incurred so do not need any consideration in the value of the project going forward. The miners sell at the future spot price which from a budgeting point of view is best given by the futures price which as deriv108 correctly points out takes into account of the lease rate.
