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Problem 1 (10 points): San Jose mine, a stand-alone silver mine, has an investment opportunity that will involve outflows and inflows of money for five years. Table 1 shows the mine's projected cash flows. Table 1. San Jose Mine's Cash Flow Table (all values in thousands) 2.000 1,500 3,000 1,000 0.10 0.10 0.10 3000 300 300 20 20 12 6,000 300 20 12 6,000 600 12 6,000 20 12 6,000 600 5,400 -3.600 600 600 5.400 5.400 5,400 -3,600 5,400 3.600 -3,600 -3.600 -1,050 -525 -375 429 -90 -735 -90 -90 -90 -45 Year M eral Reglat Acquisition Cost Mineral Development (705E-309. Mining Equipmentyr 1/20) Wome Capital Rowe (10 Reserves x 1000 O of silver Production, on 1000 Selling Price SO: Operating cost, SO: Gross Revenues - Royalties (1096) Net Reveme (NR) - Operating Costs (-) Mine Development (70%) - Depreciation - Amortization (-) Depreciation +WC-Write On Income Before Depletion (IBD) (-) Percent Depletion (15%) .) 50% Limit (-) Cost Depletion (-) Loss Forward Taxable income - Tax (25 %) Net Income (Profit) Depreciation + Amortization + Depletion +Loss Forward (+)Depreciation+WC Write Off (-) Working Capital (-) Mining Equipment (-) Mine Development (%A) - Mineral Rights (Cost Depl) Operating Cash Flow -1,095 1,281 1,185 1.335/ 975 810 810 $19 -593 -668 -488 13 -744 -1.095 200 -1,095 -454 ol -454 744 185.88751 $57.66251 21.095 25 735 429 375 90 6411 1095 488 454 35 -1000 -3000 -450 -2000 -7,500 1,800 1,792 1,652 1633.0875 1614.1125 Based on the above figures, calculate: a) Depreciation and WC write-off for year 5 + 1*. Use MACRS for a 7-year life item. b) Depletion allowance for year 1 if applicable Royalty decreased to 12 % of gross revenue c) Cash flow for periods 0 and 1 when $ 4 million is borrowed from a bank at time 0 at 8 % annual interest rate. Assume the loan payment will be uniform over years 1 through 5. Use the base case for each case. Problem 1 (10 points): San Jose mine, a stand-alone silver mine, has an investment opportunity that will involve outflows and inflows of money for five years. Table 1 shows the mine's projected cash flows. Table 1. San Jose Mine's Cash Flow Table (all values in thousands) 2.000 1,500 3,000 1,000 0.10 0.10 0.10 3000 300 300 20 20 12 6,000 300 20 12 6,000 600 12 6,000 20 12 6,000 600 5,400 -3.600 600 600 5.400 5.400 5,400 -3,600 5,400 3.600 -3,600 -3.600 -1,050 -525 -375 429 -90 -735 -90 -90 -90 -45 Year M eral Reglat Acquisition Cost Mineral Development (705E-309. Mining Equipmentyr 1/20) Wome Capital Rowe (10 Reserves x 1000 O of silver Production, on 1000 Selling Price SO: Operating cost, SO: Gross Revenues - Royalties (1096) Net Reveme (NR) - Operating Costs (-) Mine Development (70%) - Depreciation - Amortization (-) Depreciation +WC-Write On Income Before Depletion (IBD) (-) Percent Depletion (15%) .) 50% Limit (-) Cost Depletion (-) Loss Forward Taxable income - Tax (25 %) Net Income (Profit) Depreciation + Amortization + Depletion +Loss Forward (+)Depreciation+WC Write Off (-) Working Capital (-) Mining Equipment (-) Mine Development (%A) - Mineral Rights (Cost Depl) Operating Cash Flow -1,095 1,281 1,185 1.335/ 975 810 810 $19 -593 -668 -488 13 -744 -1.095 200 -1,095 -454 ol -454 744 185.88751 $57.66251 21.095 25 735 429 375 90 6411 1095 488 454 35 -1000 -3000 -450 -2000 -7,500 1,800 1,792 1,652 1633.0875 1614.1125 Based on the above figures, calculate: a) Depreciation and WC write-off for year 5 + 1*. Use MACRS for a 7-year life item. b) Depletion allowance for year 1 if applicable Royalty decreased to 12 % of gross revenue c) Cash flow for periods 0 and 1 when $ 4 million is borrowed from a bank at time 0 at 8 % annual interest rate. Assume the loan payment will be uniform over years 1 through 5. Use the base case for each case