Question

i just need questions 2 and 3

MINICASE lock Gold Mining he owner of Bullock Gold Mining, is evaluat- d mine in South Dakota. Dan Dority, the com- has just finished his analysis of the mine rimated that the mine would be productive for fter which the gold would be completely mined. an estimate of the gold deposits to Alma Gar- many's financial officer. Alma has been asked by rm an analysis of the new mine and present her dation on whether the company should open the Seth Bullock, the ow ng a new gold mine y's geologist, has ate. He has estimated sieht years, after whis Dunhas taken an es ut the company's fina Seth to perform an an razmendation new mine. Alme has the revenues the WN-O Cash Flow - $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 O also projected the expe naal operating expenses. If has used the estimates provided by Dan to determine nues that could be expected from the mine. She has iected the expense of opening the mine and the an- perating expenses. If the company opens the mine, it cost $635 million today, and it will have a cash outflow 45 million nine years from today in costs associated with dosing the mine and reclaiming the area surrounding it. The nected cash flows each year from the mine are shown in the ble. Bullock Mining has a required return of 12 percent on all of its gold mines. QUESTIONS 1 Conspicta spreadsheet to calculate the payback period, hy rate of return, modified internal rate of return, and Jient value of the proposed mine. 27_sed on your analysis should the company open the mine! Bonus question: Most spreadsheets do not have a built-in formula to calculate the payback period. Write a VBA script that calculates the payback period for a project.

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

с D E ДА 1 2 Page 2 Year Cash Flows ($600,000,000.00) $79,000,000.00 $95,000,000.00 $120,000,000.00 $163,000,000.00 $195,000,000.00 $145,000,000.00 $135,000,000.00 $112,000,000.00 ($55,000,000.00)| Cumulative CF ($600,000,000.00) ($521,000,000.00) ($426,000,000.00) ($306,000,000.00) ($143,000,000.00) $52,000,000.00 $197,000,000.00 $332,000,000.00 $444,000,000.00 $389,000,000.00 12 13 Required return 12% 1 Payback period 2 NPV 3 IRR 4.73 years $5,850,472.84 12.26% | 17 18 19 20 21 Page-3 22 23 Required return 12.5% 1 Payback period 2 NPV 3 IRR 4.73 years ($5,151,172.39) 12.26%

Cell reference -

А в 1 2 Page 2 Year Cash Flows 1 3 1 -600000000 79000000 95000000 120000000 163000000 195000000 145000000 135000000 112000000 -55000000 Cumulative CF =C3 =D3+C4 D4+C5 =D5+C6 =D6+C7 =D7+C8 =D8+C9 =D9+C10 =D10+C11 =D11+C12 7 12 13 years 14 Required return 0.12 15 16 1 Payback period =$B$7+(-$D$7/($D$8-$D$7)) 17 2 NPV =C3+NPV(C14,C4:C12) 18 3 =IRR(C3:C12) 19 20 21 Page-3 Required return 0.125 22 Payback period =$B$7+(-$D$7/($D$8-$D$7)) 242 NPV =C3+NPV(C21,C4:C12) 25 3 IRR =IRR(C3:C12) 26 23 1 years 27

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.