Dick Davies, the owner of Letseng Diamond Mining, is evaluating a new diamond mine in Tanzania. Mr. Teboho Mate, the companys geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for 8 years after which the diamond would be completely mined. Mr. Teboho Mate has also taken his estimates of the diamond deposit to Mrs. Senate Peo, the companys financial officer. Mrs. Senate has been asked by Dick to perform an analysis of the new mine and present his recommendation on whether the company should open this proposed new mine.

Mrs. Senate has used the estimates provided by Mr. Teboho 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 $500 million today, and it will have a cash outflow of $80 million 9 years from today in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flow from the mine are shown in the following table. Letseng Diamond Mining has 12% required return on all its diamond mines.

Year

Cash Flow ($)

0

-500,000,000

1

60,000,000

2

90,000,000

3

170,000,000

4

230,000,000

5

205,000,000

6

140,000,000

7

110,000,000

8

70,000,000

9

-80,000,000

Required:

Construct a spread sheet to calculate the payback period, internal rate of return, discounted payback period, and the net present value for the proposed mine