Corporate Finance Question

#1. Lincoln Coal is planning a new coal mine, which will cost 430 million to build, with the expenditure occurring next year. The mine will bring cash inflows of 200 million annually over the next seven years. It will then cost 170 million to close down the mine over the following year. Assume all cash flows occur at the end of the year. Alternatively, Lincoln Coal may choose to sell the site today. What minimum price should Lincoln set on the property, given a 16% required rate of return on these above average risk project?

A) 325,859,000
B) 376,872,000
C) 800,000,000
D) 280,913,000

0 = 0 1= -430 2= 200 3= 200 4= 200 5= 200 6= 200 7= 200 8= 200 9 = -170 NPV = 280.91272

ANSWER D