Canada World MiningInc. (CWMI) is evaluating to invest either in a newGermanium orGallium mine. CWMIs geologist has just finished his analysis of the mine site. He has estimated that both mines would be productive for 8-9 years, after which theGermanium orGallium would be completely mined.

John Walker, CEO, has requested Mary Rose, CFO, to perform an analysis of both new mines and presentherrecommendations on whether the company should invest in either the Germanium mine or the Gallium mine.

Mary has used the estimates provided by John to determine the revenues that could be expected from the mines. She has also projected the expense of opening the mines and the annual operating expenses. The expected cash flows each year from the mine are shown in the table above. CWMI has a 12% required return on all projects.

Year

Cash Flow for

Germanium Mine ($ Million)

Cash Flow for

Gallium Mine ($ Million)

0

-450

-635

1

63

-110

2

85

-50

3

120

765

4

145

515

5

175

330

6

120

255

7

95

215

8

86

190

9

-70

10

10

-

-325

Required:

1.Calculate the payback period, discounted payback period, net present value, internal rate of return, modified internal rate of return andalsoany additional capital budgeting techniques that you think necessary.

Canada World MiningInc. (CWMI) is evaluating to invest either in a newGermanium orGallium mine. CWMIs geologist has just finished his analysis of the mine site. He has estimated that both mines would be productive for 8-9 years, after which theGermanium orGallium would be completely mined.

John Walker, CEO, has requested Mary Rose, CFO, to perform an analysis of both new mines and presentherrecommendations on whether the company should invest in either the Germanium mine or the Gallium mine.

Mary has used the estimates provided by John to determine the revenues that could be expected from the mines. She has also projected the expense of opening the mines and the annual operating expenses. The expected cash flows each year from the mine are shown in the table above. CWMI has a 12% required return on all projects.

Year

Cash Flow for

Germanium Mine ($ Million)

Cash Flow for

Gallium Mine ($ Million)

0

-450

-635

1

63

-110

2

85

-50

3

120

765

4

145

515

5

175

330

6

120

255

7

95

215

8

86

190

9

-70

10

10

-

-325

Required:

1.Calculate the payback period, discounted payback period, net present value, internal rate of return, modified internal rate of return andalsoany additional capital budgeting techniques that you think necessary.