QUESTIONS:

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 the analysis, should the company open the mine? Why or why not?

Remember, this is our classroom. After you address this week's questions, you can respond to any post I put in class for your additional posts, and you should also read and respond to posts from at least two other classmates. Posting 3 times is a MINIMUM expectation. Three posts will NOT earn you an excellent grade "A". For that you must go beyond the minimum expectation. Use outside research sources in addition to your text book (journals, news articles, etc. -- but NOT Wikipedia). Properly document your sources using APA style in-text references and a reference list. Boondock Silver Mining: 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 required rate of return is 12%. The expected cash flows each year each year from the mine are shown below: Year Cash Flow 0 $635,000,000 89,000,000 105,000,000 130,000,000 173,000,000 205,000,000 155,000,000 145,000,000 122,000,000 - 45,000,000