Question

MINICASE Bullock Gold Mining Seth Bullock, the own in a new gold mine in Year WN O eck the owner of Bullock Gold Mining, is evaluat cold mine in South Dakota. Dan Dority, the com- cologist, has just finished his analysis of the mine He has estimated that the mine would be productive for mit vears, after which the gold would be completely mined. Dan has taken an estimate of the gold deposits to Alma Gar- it, 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 Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the an- tal operating expenses. If the company opens the mine, it will cost $635 million today, and it will have a cash outflow of 545 million nine 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 Bullock Mining has a required return of 12 percent on 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 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 your analysis, should the company open the mine? 3. 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. all of its gold mines.

use 11% for the interst rate and reinvestment rate

Answer 1

As per rules I am answering the first 4 subparts of the question

Payback period	4.67
IRR	14.24%
MIRR	12.55%
NPV	84313842.46

Workings

Book1 - Excel AutoSave o 9.3HD File Home Insert Draw Page Layout Formulas Data Review View Help Tell me what you want to do - 11 A = = 0 Calibri BIU - B - -A A = E Sign in - 0 X Share Comments 23Insert E. AY O Delete - Format . Sort & Find & Filter - Select Cells Editing Paste General 3$ -% to Number - Conditional Format as Formatting Table - Cell Styles Clipboard Font Alignment Styles - X V for 105000000 Payback period =B6-D6/07 IRR =IRR(C2:011) MIRR =MIRR(C2:C11,11%,11%) NPV =NPV(11%,C3:C11)+C2 3 Year Cash flows Cumulative CF 0 -635000000 =C2 1 89000000 =D2+C3 2 105000000 =D3+C4 130000000 =D4+C5 173000000 =D5+C6 205000000 =D6+C7 6 155000000 =D7+C8 7 145000000 =D8+C9 8 122000000 =D9+C10 45000000 =D10+C11 9 17 Sheet1 Ready E -- -_ + 100% ADUENG 4:51 AM 0 100 Loe xiwi