Year 0 1 2 3 5 6 7 8 9 Cash Flow -$950,000,000 190,000,000 215,000,000 225,000,000 285,000,000 275,000,000 235,000,000 205,000,000 165,000,000 - 75,000,000 1. Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate of return, profitability index, and net present value of the proposed mine. 2. Based on your analysis, should the company open the mine?
Year 0 1 2 3 5 6 7 8 9 Cash Flow -$950,000,000 190,000,000 215,000,000 225,000,000 285,000,000 275,000,000 235,000,000 205,000,000 165,000,000 - 75,000,000 1. Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate of return, profitability index, and net present value of the proposed mine. 2. Based on your analysis, should the company open the mine?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
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1. Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate of return,
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2. Based on your analysis, should the company open the mine?
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Transcribed Image Text:חו
E
D
C
4
0
R
5
V
Y
F G
6
&
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Year
D
0
1
2
3
1. Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate of return,
profitability index, and net present value of the proposed mine.
2. Based on your analysis, should the company open the mine?
*
4
5
6
7
8
9
H J
8
00
Cash Flow
B N M
-$950,000,000
190,000,000
215,000,000
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285,000,000
275,000,000
235,000,000
205,000,000
165,000,000
75,000,000
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fio 11
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Transcribed Image Text:3*F
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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.
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Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She also
has projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it
will cost $950 million today, and it will have a cash outflow of $75 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 following table. Bullock Mining has a 12 percent required return on all of its gold mines.
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