Problem Set #5 Integrative: Complete investment decision. With the market price of gold at $2,225.00 per ounce, Maritime Resources Corp., a Canadian mining firm, would like to assess the financial feasibility of reopening an old gold mine that had ceased operations in the past due to low gold prices. Reopening the mine would require an up-front capital expenditure of $100.10 million and annual operating expenses of $39.42 million. Maritime expects that over a 7-year operating life it can recover 189,000 ounces of gold from the mine and that the project will have net after-tax terminal value $ 30.1 million. Maritime uses straight-line depreciation, has a 21.04% corporate tax rate, and has an 12.4% cost of capital.

a.Calculate the operating cash flows for the gold mine project.

b.Depict on a timeline the net cash flows for the gold mine project.

c.Calculate the internal rate of return (IRR) for the gold mine project.

d.Calculate the net present value (NPV) for the gold mine project.

e.Make a recommendation to accept or reject the gold mine project, and justify your answer.

PROVIDE YOUR ANSWERS BELOW:

a.Calculate the operating cash flows for the gold mine project. (US Dollars)

Price per ounce of gold ____________

Ounces of gold in the mine ____________

Project life in years ____________

Corporate tax rate ____________

Cost of capital ____________

Capital expenditure ____________

Dep. per year ____________

Annual revenue____________

Annual expenses ____________

YEAR 1

____________________________________________________________________________________________________________

+Rev. ____________

-Exp.____________

____________________________________________________________________________________________________________

EBDIT____________

-Dep.____________

____________________________________________________________________________________________________________

EBIT____________

-Tax____________

____________________________________________________________________________________________________________

NOPAT____________

+Dep.____________

____________________________________________________________________________________________________________

+Net Terminal Value

____________________________________________________________________________________________________________

OCF____________

YEAR 2

____________________________________________________________________________________________________________

+Rev. ____________

-Exp.____________

____________________________________________________________________________________________________________

EBDIT____________

-Dep.____________

____________________________________________________________________________________________________________

EBIT____________

-Tax____________

____________________________________________________________________________________________________________

NOPAT____________

+Dep.____________

____________________________________________________________________________________________________________

+Net Terminal Value

____________________________________________________________________________________________________________

OCF____________

YEAR 3

____________________________________________________________________________________________________________

+Rev. ____________

-Exp.____________

____________________________________________________________________________________________________________

EBDIT____________

-Dep.____________

____________________________________________________________________________________________________________

EBIT____________

-Tax____________

____________________________________________________________________________________________________________

NOPAT____________

+Dep.____________

____________________________________________________________________________________________________________

+Net Terminal Value

____________________________________________________________________________________________________________

OCF____________

YEAR 4

____________________________________________________________________________________________________________

+Rev. ____________

-Exp.____________

____________________________________________________________________________________________________________

EBDIT____________

-Dep.____________

____________________________________________________________________________________________________________

EBIT____________

-Tax____________

____________________________________________________________________________________________________________

NOPAT____________

+Dep.____________

____________________________________________________________________________________________________________

+Net Terminal Value

____________________________________________________________________________________________________________

OCF____________

YEAR 5

____________________________________________________________________________________________________________

+Rev. ____________

-Exp.____________

____________________________________________________________________________________________________________

EBDIT____________

-Dep.____________

____________________________________________________________________________________________________________

EBIT____________

-Tax____________

____________________________________________________________________________________________________________

NOPAT____________

+Dep.____________

____________________________________________________________________________________________________________

+Net Terminal Value

____________________________________________________________________________________________________________

OCF____________

YEAR 6

____________________________________________________________________________________________________________

+Rev. ____________

-Exp.____________

____________________________________________________________________________________________________________

EBDIT____________

-Dep.____________

____________________________________________________________________________________________________________

EBIT____________

-Tax____________

____________________________________________________________________________________________________________

NOPAT____________

+Dep.____________

____________________________________________________________________________________________________________

+Net Terminal Value

____________________________________________________________________________________________________________

OCF____________

YEAR 7

____________________________________________________________________________________________________________

+Rev. ____________

-Exp.____________

____________________________________________________________________________________________________________

EBDIT____________

-Dep.____________

____________________________________________________________________________________________________________

EBIT____________

-Tax____________

____________________________________________________________________________________________________________

NOPAT____________

+Dep.____________

____________________________________________________________________________________________________________

+Net Terminal Value

____________________________________________________________________________________________________________

OCF____________

b.Depict on a timeline the net cash flows for the gold mine project.

t=0 ____________

t=1 ____________

t=2 ____________

t=3 ____________

t=4 ____________

t=5 ____________

t=6 ____________

t=7 ____________

c.Calculate the internal rate of return (IRR) for the gold mine project.

IRR ____________

MIRR ____________

d.Calculate the net present value (NPV) for the gold mine project.

NPV $ ____________

e.Make a recommendation to accept or reject the gold mine project, and justify your answer.