You ase wokking for an Umamed Coal Mining compuny is Cobondo $($UCM from now on$).$ The

compary has recearty been approachod by the Colorndo Electric Coeupany wirh a requent no

supply coal for its electric penerators for the sext four years. Since UCM does not have any

excess capacity. they are considering epening a new mine on $5,000$ acres of land purchased $10$

years apo. Based on a recent appraisal. the coupany feels it conld receive $$6\mathrm{.}5$ million on an

after$-$tax basis if it sold the land todry:

resiore the land no ins orizinal coedition atter mining it $($this is commonly referred no at

reclviming the lined$).$ UCM needs no do this athough they do sot pline $10$ selll the land after

ming it$.$ This equipment will cost $$95$ million and will be depreciated on a seven$-$year MACRs

schodule. The contract runs for four years $-$ atfer that the compony fecls that the equipment can

be sold for ${60}^{**},$ of ins initial purchove price. However. UCM plans to open asother mine at that

time and will we the equivment at the new mine

The cournact calls for the delivery of $$00,000$ nous of coul per year at a price of $586$ per bon.

tous, respectively, over the next forr yenes. The excess production will be sold at an average of

$577$ per bon in the spot morket. Variable costs aenornt to $$31$ per toen and fised costs are

$$4,100,000$ per year. The mine will require a net wodking capital imestment of $5$ percent of

sales. The NWC will be beilt up in the year prior to the sales

UCM will be respoesible for reclaiming the lad at nerminntion of the mining. This will occur in

Yeve $5.$ Ir is estimnod the cost of reclamarion will be $$2\mathrm{.}7$ million. UCM faces a $25$ percest tax

rase asd has a $10$ percen required return on new mine projects. Assume that a loss in any year

will result in a tax credit.

Yoe have beve aprecochod by the peesident of the coespary with a repuest so analyze the project

the seW mine. Shomd UCM take the costract and open the mine? Discuss tsinz the semplate

amiched.

Assumptions $($Inputs$)$: