CHAPTER CASE BULLOCK GOLD MINING seth Bullock, the owns of Bullock Gold Muting, is evaluating a new gold mine in South Dakota. Dan Daily. the company's geologist, has just finished his analysis of the mine sheik has estimated that the mine would be p
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| CHAPTER CASE BULLOCK GOLD MINING | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| seth Bullock, the owns of Bullock Gold Muting, is evaluating a new gold mine in South Dakota. Dan Daily. the company's geologist, has just finished his analysis of the mine sheik has estimated that the mine would be podoctive for eight years, after which the gold would be completely mused. Dan a 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 Fasent her recommendation on whether the company should open the new mine. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Alma has used the estimates provided by Dan to determine the :venues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operaimg expenses. If the company opens the mine. it will cost 5650 million today, and it will have a cash outflow of 572 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| million nine years from today in costs associated with closing the mine and reclaiming the area surrounding it. The expoaed cash flows each year from the mine are shown in the table on this page. Bullock Mining has a 12 parent required return on all of its gold mines. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| yeas | Casb now | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0 | ############ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 80.0:0400 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2 | 121400000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3 | 1620301103 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4 | 221,C00400 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| S | 210.03 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6 | 154.000403 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7 | 108.0004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| a | 86,000g0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9 | —72A00t100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| QUESTIONS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| I.Construct a spreadsheet to calculate the payback period, internal rate of mum. 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 fora project. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| I We could. of mu:sc.calculate the avenge of the six book values directly. In thousands. we would have (SRO + 400 + 300 + 2CA « ICO + 0)/6 = 5250. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2 The AAR is closely related to the arum on assets. or ROA, discussed in Chapter 3. In practice, the AAR is sometimes computed by first calcialuitag the ROA for each year read then averaging Use results. This produces a number that is similar, but not identical, to the one we competed. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10 years ago
CHAPTER CASE BULLOCK GOLD MINING seth Bullock, the owns of Bullock Gold Muting, is evaluating a new gold mine in South Dakota. Dan Daily. the company's geologist, has just finished his analysis of the mine sheik has estimated that the mine would be p
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