Question
Please I need help Beth Boondock, owner of Boondock Silver Mining, is reviewing the details of a new silver mine in South Dakota. According to
Please I need help
Beth Boondock, owner of Boondock Silver Mining, is reviewing the details of a new silver mine in South Dakota. According to the company's geologist, Dory Donovan, a detailed analysis of the mine suggests it would be productive for eight years. After that amount of time, all of the silver ore would be completely mined. Dory sent an estimate of the silver deposits to Gina Albert, the company's chief financial officer. Beth has contacted Gina to request a full financial analysis of the new mine and to present her recommendations on whether the company should open the new mine. Gina used the estimates provided by Dory to determine the revenues that could be expected from the mine. She has projected both the annual operating expenses of the new mine and the expense of opening the mine. If the company opens the mine, it will cost $635 million today, and it will have a cash outflow of $45 million nine years from today in costs associated with closing the mine and reclaiming the surrounding area. The expected cash flows each year each year from the mine are shown below:
Year | Cash Flow |
0 | -$635,000,000 |
1 | 89,000,000 |
2 | 105,000,000 |
3 | 130,000,000 |
4 | 173,000,000 |
5 | 205,000,000 |
6 | 155,000,000 |
7 | 145,000,000 |
8 | 122,000,000 |
9 | - 45,000,00 |
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? Why or why not?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started