Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Hey can someone do a financial analysis on the following information? The objective is to decide whether or not a mining train station should use

Hey can someone do a financial analysis on the following information?

The objective is to decide whether or not a mining train station should use automated trains or trains with drivers (which one will cost less)

Blue Mountain Mining
Information Sheet
General Information Amounts Notes
Iron ore reserve (tonnes) 900,000,000
Annual production (tonnes) 30,000,000
Life of mine (years) 30
Distance from mine to port (kilometres) 240 Round trip is 480 kilometres
Trains in operation 3 Each train comprises locomotives and carriages
Locomotives per train 2
Carriages per train 208
Fuel usage per train (litres per kilometre) 8 Averaged over round trip
Fuel cost ($ per litre) 1.40
Effective operating days per year 360 Used to adjust for maintenance and breakdowns
Tax rate 30% Tax is paid in the year of income
Discount rate After Tax 10% Applies to non-automated and automated options
Information on Locomotives (per locomotive)
Initial outlay ($) 2,500,000 Mine uses MD4400AC trains
Life of locomotive (years) 15 Operative life is shorter than average due to continued operation of trains and load requirements
Working capital ($) 500,000 Fuel, spare parts and related materials
Maintenance costs per year ($) 200,000
Depreciation method Straight Line Rate = 1/Locomotive Life
Salvage value at end of year 15 ($) 0.00 Mine location and associated costs effectively make locomotives no salvageable
Information on Drivers
Drivers required (per train, per day) 4 Two drivers operate each train.
Work hours (per driver, per day) 12 Each shift covers the trip from the mine to the port or from the port to the mine.
Driver's weekly working hours (average) 42 Averaged as drivers will work 2 weeks on 2 weeks off.
Driver' yearly working weeks 48 Net of leave
Driver's unavailability due to illness (weeks per year) 2
Total Driving Hours (per year, per train) 51,840
Total drivers required 27
Driver's average annual salary ($) 220,000
Information on Automation
Additional capital outlay to rail line ($) 35,000,000 Sensors and related materials, depreciated straight line over life of mine
Salvage of additional capital outlay to rail line ($) 0
Additional capital outlay to locomotive ($, per locomotive) 250,000 Sensors and related materials required for all new locomotives, depreciated straight line over life of locomotive
Salvage of additional capital outlay to locomotives ($, per locomotive) 0
Additional working capital ($) 1,000,000 Total across rail line and all trains
Fuel efficiency usage adjustment 93% Automation reduces fuel usage as locomotives operate more efficiently, e.g. reduces cost by 7%
Maintenance cost adjustment 95% Automation reduces maintenance costs through less wear and tear, and breakdowns of locomotives, e.g. reduces cost by 5%
Drivers required 0 No drivers required due to automation
Total automation technicians required 6 Additional technicians required to maintain locomotives and rail line
Automation technician's average annual salary ($) 150,000

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

Intermediate Accounting

Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones

10th Edition

324300980, 978-0324300987

More Books

Students also viewed these Accounting questions