Seth Bullock, the owner of Bullock Gold Mining,is evaluating a new gold mine in South Dakota.DanDority, the company’s geologist, has justfinished his analysis of the mine site. He hasestimated that the mine would be productive foreight years, after which the gold would becompletely mined. Dan has taken an estimate ofthe gold deposits to Alma Garrett, the company’sfinancial officer. Alma has been asked by Seth toperform an analysis of the new mine and presenther recommendation on whether the companyshould open the new mine.www.themegallery.comCompany Logo Alma has used the estimates provided by Dan todetermine the revenues that could be expectedfrom the mine. She has also projected the expenseof opening the mine and the annual operatingexpenses. If the company opens the mine, it willcost $ 725 million today, and it will have a cashoutflow of $80 million nine years from today incosts associated with closing the mine andreclaiming the area surrounding it. The expectedcash flows each year from the mine are shown inthe table. Bullock Mining has a 12 percentrequired return on all of its gold mines. Year Cash Flow0 -$725,000,0001 90,000,0002 135,000,0003 180,000,0004 245,000,0005 232,000,0006 170,000,0007 120,000,0008 95,000,0009 -80,000,000 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.Based on your analysis, should the company open the mine? CHAPTER CASEĮMININGMining, isAlma has used the estimates provided by Dan todetermine the revenues that could be expected fromTeththe owner ofSevaluating a new gold mine in South Dakota. DanDority, the company's geologist, has just finished his the mine. She has also projected the expense of open-analysis of the mine site. He has estimated that the ing the mine and the annual operating expenses. If themine would be productive for eight years, after whichthe gold would be completely mined. Dan has taken anestimate of the gold deposits to Aima Garrett, the com from today in costs associated with closing the minepany's financial officer. Alma has been asked by Seth and reclaiming the area surounding R. The expectedto porform an analysis of the new mine and present her cash flows each year from the mine are shown in therecommendation on whether the company should openthe new mine.company opens the mine, it will cost $725 milon today.and it will have a cash outflow of $80 million nine yearstable on this page.|required retum on all of its gold mines.Mining has a 12 percentYearCash Flow-$725,000,00090,000,0001135,000,000180,000.000245,000,000234232.000.000170,000,000120,000,00095,000,000-80,000,000QUESTIONS1. Construct a spreadsheet to caloulate the paybackperiod, internal rate of returm, modifed intenal rateof retum, and net present value of the proposedmine.2. Based on your analysis, should the company openthe mine?

Net present value is defined as the discounted cash flow technique which applies to weight the items…

Answered: Construct a spreadsheet to calculate…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Seth Bullock, the owner of Bullock Gold 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

eight 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.

www.themegallery.com

Company Logo

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 annual operating

expenses. If the company opens the mine, it will

cost $ 725 million today, and it will have a cash

outflow of $80 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 table. Bullock Mining has a 12 percent

required return on all of its gold mines.

Year Cash Flow

0 -$725,000,000

1 90,000,000

2 135,000,000

3 180,000,000

4 245,000,000

5 232,000,000

6 170,000,000

7 120,000,000

8 95,000,000

9 -80,000,000

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.
Based on your analysis, should the company open the mine?

CHAPTER CASE
ĮMINING
Mining, is
Alma has used the estimates provided by Dan to
determine the revenues that could be expected from
Teth
the owner of
Sevaluating a new gold mine in South Dakota. Dan
Dority, the company's geologist, has just finished his the mine. She has also projected the expense of open-
analysis of the mine site. He has estimated that the ing the mine and the annual operating expenses. If the
mine would be productive for eight years, after which
the gold would be completely mined. Dan has taken an
estimate of the gold deposits to Aima Garrett, the com from today in costs associated with closing the mine
pany's financial officer. Alma has been asked by Seth and reclaiming the area surounding R. The expected
to porform an analysis of the new mine and present her cash flows each year from the mine are shown in the
recommendation on whether the company should open
the new mine.
company opens the mine, it will cost $725 milon today.
and it will have a cash outflow of $80 million nine years
table on this page.|
required retum on all of its gold mines.
Mining has a 12 percent
Year
Cash Flow
-$725,000,000
90,000,000
1
135,000,000
180,000.000
245,000,000
2
3
4
232.000.000
170,000,000
120,000,000
95,000,000
-80,000,000
QUESTIONS
1. Construct a spreadsheet to caloulate the payback
period, internal rate of returm, modifed intenal rate
of retum, and net present value of the proposed
mine.
2. Based on your analysis, should the company open
the mine?

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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. Based on your analysis, should the company open the mine?