Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please answer all 3 question and explain with details X GOLD MINING Seth Bullock, the owner of X Gold Mining, is evaluating a new gold

please answer all 3 question and explain with details X GOLD MINING

Seth Bullock, the owner of X Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the companys 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 companys 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.

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 opening the mine and the annual operating ex- penses. If the company opens the mine, it will cost $750 million today, and it will have a cash outflow of $115 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 that follows. Bullock has a 12 percent required return on all of its gold mines.

image text in transcribed
  1. 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.

2. Based on your analysis, should the company open the mine?

3. Bonus question: Most spreadsheets do not have a built-in formula to calculate the payback period. Write a VBA script that calculates the payback period for a project.

\begin{tabular}{|c|r|} \hline YEAR & CASH FLOW \\ \hline 0 & $750,000,000 \\ 1 & 140,000,000 \\ 2 & 180,000,000 \\ 3 & 210,000,000 \\ 4 & 230,000,000 \\ 5 & 205,000,000 \\ 6 & 185,000,000 \\ 7 & 160,000,000 \\ 8 & 110,000,000 \\ 9 & 115,000,000 \\ \hline \end{tabular}

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

Financial Markets And Institutions

Authors: Frederic S. Mishkin, Stanley Eakins

6th International Edition

0321552113, 9780321552112

More Books

Students also viewed these Finance questions