Bullock Gold Mining

Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the companys 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 would be completely mined. Dan has taken an estimate of the gold deposits to Alma Garrett, the companys 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, it will cost $635 million today, and it will have a cash outflow of $45 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 required return of 12 percent on all of its gold mines.

Year	Cash Flow
0	$635,000,000
1	89,000,000
2	105,000,000
3	130,000,000
4	173,000,000
5	205,000,000
6	155,000,000
7	145,000,000
8	122,000,000
9	45,000,000

QUESTIONS

1. Use investment, cash-flows and discount rate as presented in the chapter 9. Prepare the following: 1. Payback analysis 2. NPV analysis 3. IRR analysis

2. a. Change the cash-flows as follows:

investment $600,000,000

year 1 $79,000,000

year 2 $95,000,000

year 3 $120,000,000

year 4 $163,000,000

year 5 $195,000,000

year 6 $145,000,000

year 7 $135,000,000

year 8 $112,000,000

year 9 ($55,000,000) Salvage value

B. Answer the same quests as #1 above.

3.

A. Use the same data from #2 above and change the discount rate to 12.5%.

B. answer the same question from #1