Bethesda Mining is a midsized coal mining company with 20 mines located in Ohio Pennsylvania, West Virginia, and Kentucky. The company operates deep as well as of the coal mined is sold under contract, with excess production sold on the spot market The coal mining industry, especially high-sulfur coal operations such as Bethesda has been hard-hit by environmental regulations. Recently, however a combination of increased demand for coal and new pollution reduction technologies has led to an for high-sulfur Bethesda has just been approached by Mid-Ohio Electric Company with a request to supply coal for its electric generators for the next four years. Mining does not have enough excess capacity at its exist mines to the contract. company is considering opening a mine in Ohio on 5,000 acres of land purchased 10 years ago for $5 million. Based on a recent appraisal, the company feels it could receive $5.5 million on an after tax basis if it sold the land today. Strip mining is a process where the layers of topsoil above coal vein are removed and the exposed coal is removed. Some time ago, the company would simply remove the land an unusable condition. Changes in mining regulations no force a company to reclaim the land; that is, when the mining is completed, the must be to its original condition The land can then be used for other reposes. Because it is currently operating at full capacity, Bethesda will need to purr additional necessary equipment, which will cost $85 million. The be depreciated on seven-year MACRS schedule. The contract runs only four years. that time the coal the site will be entirely mined. The company feels that can be sold for 60 percent of its initial purchase price in four years. However, Bethesda plans to open another strip at that time and will use the equipment at mine. The contract for of 500,000 tons of coal year price s82 per Mining feels that production 620,000 tons, 680,000 tons, 730,000 tons, and 590,000 tons respectively, over the next four years. The excess production will be sold in the spot market at an average of $76 per ton. to S31 per ton, and fixed costs are $4, 100,000 per year. The mine will require a networking sales. investment of 5 percent of sales, The NWC will be built up in the year prior to the Bethesda will be responsible for reclaiming the land at termination of the mining. This will in Year 5. company uses an outside company for reclamation of all the company's Strip mines. It is estimated the cost of reclamation will be s2.7 million. In to get the necessary permits for the strip mine, the company agreed to donate the land after reclamation to the state use as a park and result in a charitable expense deduction of $6 million. Bethesda faces a 38 percent tax rate and has percent required return on new strip mine projects loss in any year will result in a tax credit You have been approached by the president of the company with a request analyze the project. to in Calculate the payback period, profitability index, net value, and rate of return for the new strip mine. Should Bethesda Mining and open the mine? Bethesda Mining is a midsized coal mining company with 20 mines located in Ohio Pennsylvania, West Virginia, and Kentucky. The company operates deep as well as of the coal mined is sold under contract, with excess production sold on the spot market The coal mining industry, especially high-sulfur coal operations such as Bethesda has been hard-hit by environmental regulations. Recently, however a combination of increased demand for coal and new pollution reduction technologies has led to an for high-sulfur Bethesda has just been approached by Mid-Ohio Electric Company with a request to supply coal for its electric generators for the next four years. Mining does not have enough excess capacity at its exist mines to the contract. company is considering opening a mine in Ohio on 5,000 acres of land purchased 10 years ago for $5 million. Based on a recent appraisal, the company feels it could receive $5.5 million on an after tax basis if it sold the land today. Strip mining is a process where the layers of topsoil above coal vein are removed and the exposed coal is removed. Some time ago, the company would simply remove the land an unusable condition. Changes in mining regulations no force a company to reclaim the land; that is, when the mining is completed, the must be to its original condition The land can then be used for other reposes. Because it is currently operating at full capacity, Bethesda will need to purr additional necessary equipment, which will cost $85 million. The be depreciated on seven-year MACRS schedule. The contract runs only four years. that time the coal the site will be entirely mined. The company feels that can be sold for 60 percent of its initial purchase price in four years. However, Bethesda plans to open another strip at that time and will use the equipment at mine. The contract for of 500,000 tons of coal year price s82 per Mining feels that production 620,000 tons, 680,000 tons, 730,000 tons, and 590,000 tons respectively, over the next four years. The excess production will be sold in the spot market at an average of $76 per ton. to S31 per ton, and fixed costs are $4, 100,000 per year. The mine will require a networking sales. investment of 5 percent of sales, The NWC will be built up in the year prior to the Bethesda will be responsible for reclaiming the land at termination of the mining. This will in Year 5. company uses an outside company for reclamation of all the company's Strip mines. It is estimated the cost of reclamation will be s2.7 million. In to get the necessary permits for the strip mine, the company agreed to donate the land after reclamation to the state use as a park and result in a charitable expense deduction of $6 million. Bethesda faces a 38 percent tax rate and has percent required return on new strip mine projects loss in any year will result in a tax credit You have been approached by the president of the company with a request analyze the project. to in Calculate the payback period, profitability index, net value, and rate of return for the new strip mine. Should Bethesda Mining and open the mine