SethBullock, the owner ofBullockGold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company's geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for nine years, after which the gold would be completely mined. Dan has taken an estimate of the gold deposits to Alma Garrett, the company's 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.

0 - $700,000,000

1 70,000,000

2 137,000,000

3 183,000,000

4 -25,000,000

5 310,000,000

6 164,000,000

7 208,000,000

8 86,000,000

9 32,000,000

10 -97,000,000

Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She alsohasprojected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost $700 million today, and it will have a cash outflow of $97 million ten 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 nearby table.BullockGold Mining has a 13 percent required return on all of its gold mines.

Need to calculate:

NPV

Payback Periods

IRR

MIRR using a 13% finance rate and 13% reinvesting rate

Give an analysis of the information provided and decide if rather or not the company should recommend opening the mine. Please refer to all attachments before answering this question. The problem is solved, the needed information is the ANALYSIS of the ANSWER. and if rather or not it is recommended for the company to open the mine.

IRR IS A RATE AT WHICH NPV =0 OR PV OF CASHINFLOWS = PV OF CASHOUTFLOWS cashflows from the Present value of year project pv factor @10% cashflows NHO $700,000,000.00 $700,000,000.00 $70,000,000.00 0.909090909 $63,636,363.64 $137,000,000.00 0.826446281 $113,223,140.50 $183,000,000.00 0.751314801 $137,490,608.56 UI A -$25,000,000.00 0.683013455 -$17,075,336.38 $310,000,000.00 0.620921323 $192,485,610.15 $164,000,000.00 0.56447393 $92,573,724.53 $208,000,000.00 0.513158118 $106,736,888.59 $86,000,000.00 0.46650738 $40,119,634.70 $32,000,000.00 0.424097618 $13,571,123.79 10 -$97,000,000.00 0.385543289 -$37,397,699.07 NPV OF PROJECT $5,364,058.99 IRR = I,+ NPV NPV - NPVb (rb - ra) = lower discount rate chosen I'b = higher discount rate chosen N. = NPV at ra = NPV at It IRR = ra + [{ NPVa / (NPVa - NPVb) }*(rb -ra) ra= Lower discount rate = 10% rb = Higher Discount rate = 13% NPVa = NPV at lower discount rate = $5,364,058.99 NPVb = NPV at higher discount rate = -$69,399,364.65 IRR = 10% + { 5,364,058.99/ (5,364,058.99 - (-69,399,364.65)) } * (13%-10%) IRR = 10% + [ (5,364,058.99/74,763,423.64 )*3 IRR = 10% + (0.071747102*3) IRR = 10.215 or 10.22%Cashflows from the Present value of year project pv factor @ 13% cashflows OUT A W N HO -$700,000,000.00 1 -$700,000,000.00 $70,000,000.00 0.884955752 $61,946,902.65 $137,000,000.00 0.783146683 $107,291,095.62 $183,000,000.00 0.693050162 $126,828,179.70 -$25,000,000.00 0.613318728 -$15,332,968.19 $310,000,000.00 0.542759936 $168,255,580.16 $164,000,000.00 0.480318527 $78,772,238.50 7 $208,000,000.00 0.425060644 $88,412,613.90 8 $86,000,000.00 0.376159862 $32,349,748.11 9 $32,000,000.00 0.332884833 $10,652,314.67 10 -$97,000,000.00 0.294588348 $28,575,069.77 NPV OF PROJECT -$69,399,364.65 year Cashflows from project Cumulative cashflows 0 -$700,000,000.00 -$700,000,000.00 $70,000,000.00 -$630,000,000.00 2 $137,000,000.00 -$493,000,000.00 3 $183,000,000.00 -$310,000,000.00 4 -$25,000,000.00 -$335,000,000.00 5 $310,000,000.00 $25,000,000.00 6 $164,000,000.00 7 $208,000,000.00 8 $86,000,000.00 9 $32,000,000.00 10 -$97,000,000.00 payback period = 5 years + (25 million/164 million) payback period = 5 years + 0.152439 payback period = 5.15 yearsyear cashflows fv factor @13% Future value of cashflows UI W N P $70,000,000.00 3.004041938 $210,282,935.66 $137,000,000.00 2.658444193 $364,206,854.43 $183,000,000.00 2.35260548 $430,526,802.92 $310,000,000.00 1.842435179 $571,154,905.58 $164,000,000.00 1.63047361 $267,397,672.04 $208,000,000.00 1.442897 $300,122,576.00 00 $86,000,000.00 1.2769 $109,813,400.00 9 $32,000,000.00 1.13 $36,160,000.00 Future Value of positive Cashinflows $2,289,665,146.63 year cashflows pv factor @ 13% Present value of cashflows 0 $700,000,000.00 1 -$700,000,000.00 4 -$25,000,000.00 0.480318527 -$12,007,963.19 10 $97,000,000.00 0.294588348 $28,575,069.77 Present value of Negative cash flow -$740,583,032.95 FV of positive cash flowpv of Negative cash flow 2289665147 740583033 MIRR = ((2289665146.63 / 740583032.95)^(1/10)) -1 0.119488977 MIRR = 11.95%MIRR Formula 1 FV +ve cash flows MIRR - 1 PV -ve cash flows MIRR = Modified internal rate of return FV = Future value of positive cash flows at the reinvest rate (r) PV = Present value of negative cash flows at the finance rate (f) n = number of periods D www.double-entry-bookkeeping.com