Bullock Gold Mining Case Study Solution

Bullock Gold Mining Case Study Solution
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.
Alma has used 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 $500 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
following table. Bullock Mining has a 12 percent required return on all
of its gold mines.
Year Cash Flow
0 -$500,000,000
1 60,000,000
2 90,000,000
3 170,000,000
4 230,000,000
5 205,000,000
6 140,000,000
7 110,000,000
8 70,000,000
9 -80,000,000
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. Most spreadsheets do not have a built-in formula to
calculate the payback period. Write a YBA script that calculates the
payback period for a project.

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