Montana coal mines have provided Burlington Northern Santa Fe Railway with a steady cash flow for over 60 years. The Montana Coal Mining Corporation has requested a new coal freight line to be added from Havre, Montana to Billings, Montana to move mined coal. Buffet estimates that the Havre Coal Mine will produce for the next 25 years. Making an investment in this is a risk to BNSF. Coal is considered a dirty source of energy and some major energy companies have shuttered their coal powered energy plants or are considering doing so in the future. Buffets team is worried about the long-term prospects in investing in the Montana Coal Line. On the other hand, if this line makes money, BNSF will consider it a viable investment alternative. The coal freight loads are expected to slightly decrease each year for the next 5 years before leveling off for another 20 years. Warren forecasts Year 1 coal hauling revenue at $225,000,000. The 2017 Earnings Before Depreciation and Taxes are forecast at 33% of Revenue each year. In Years 2 5, revenue is forecast to decrease by 1% each year. The Havre to Billings route will require 230 miles of track to be installed. In addition to the track infrastructure installation - land, locomotives, and coal freight cars will have to be purchased The projected cost per track mile is estimated to be $0.9M. This is an all in cost that includes track, land, and trains. Land represents 10% of the investment amount. The remaining investment amount will be taken over 15 years MACRS. Tax Rate: 30% Cost of Capital/Discount Rate: 7% Calculate the following for five years: Payback method Net Present Value method 5 year cash flow schedule Internal Rate of Return Modified Internal Rate of Return