Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in
ID: 2776110 • Letter: S
Question
Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company's geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for eight years, after which the gold deposits to Alma Garrett, the company's financial officer. Alma has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine.
Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine and the annual operating expenses. If the company opens the mine, it will cost $525 million today, and it will have a cash outflow of $35 million nine years from today in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the table. Bullock Mining has a 12 percent required return on all of its gold mines.
1.) Construct a spreadsheet to calculate the payback period, internal rate of return, modified, internal rate of return, and net present value of the proposed mine.
2.) Based on the analysis, should the company open the mine?
Explanation / Answer
The company should open the mine because NPV is postive.
NET PRESEN VALUE YEAR CASH FLOW 0 -525 -525 1 74 1.12 66.07143 2 97 1.2544 77.32781 3 125 1.404928 88.97253 4 157 1.57248 99.84229 5 185 1.761178 105.0434 6 145 1.972519 73.51005 7 125 2.2092 56.58157 8 102 2.474304 41.22371 9 -35 2.77088 -12.6314 NPV 70.94137Related Questions
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