Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Case Study 04: Ceth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company's geologist,

image text in transcribed
Case Study 04: Ceth 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 would be completely mined. Dan has taken an estimate of 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. Year Cash Flow -$650,000,000 80,000,000 121,000,000 162,000,000 221,000,000 210,000,000 154,000,000 108,000,000 86,000,000 - 72,000,000 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 open-ing the mine and the annual operating expenses. If the company opens the mine, it will cost $650 million today, and it will have a cash outflow of $72 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 on this page. Bullock Gold Mining has a 12 percent required return on all of its gold mines. QUESTIONS: 1. 2. 3. 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. Based on your analysis, should the company open the mine? Bonus question: Most spreadsheets do not have a built-in formula to calculate the payback period. Write a VBA script that calculates the payback pe-riod for a project

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance And Investments Application To South African Financial Markets

Authors: Mthuli Ncube

1st Edition

3843375984, 9783843375986

More Books

Students also viewed these Finance questions