Case study: Impact of writeoff / writedown on economics Applying the economic analysis model of ATCF to
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Case study: Impact of writeoff / writedown on economics
Applying the economic analysis model of ATCF to evaluate the impact of writeoff/writedown on project economics. A simplified economic analysis of ATCF with and without writeoff is recommended, but not required. A half-page write up is needed.
Please investigate the following case:
Calculate the ATCF, IRR, and NPV (at minimum ROR = 20% after tax) for 6-year project and a corporate tax rate of 30% as follows. Please consider two scenarios for mineral rights acquisition cost: (a) to write off immediately and (b) to apply cost depletion.
- The investor is a large C-Corp.
- Total reserve is 4,200,000 UNIT.
- Production will be 700,000 UNIT per year from year 1 to year 6
- Mineral rights acquisition cost for property would be $6,000,000 at time zero
- Exploration cost is expected to be $12,000,000 at time zero
- Tangible equipment cost is $6,500,000 at time zero
- Working capital of $2,000,000 at time zero
- Equipment depreciation will be based on MACRS 5-year depreciation starting from year 1 to year 6 with half-year convention (consider rates from table A-1 for 5-years with halfyear convention)
- The price of commodity is $90 per UNIT with 12% escalation each year starting from year 2
- Operating cost is $2,500,000 annually with an escalation rate of 5% starting from year 2 Environmental cost for Year 6 is $200,000 escalated 5% starting from year 0
- Royalty is 1/8
Related Book For
Introduction To Health Care Management
ISBN: 9781284081015
3rd Edition
Authors: Sharon B. Buchbinder, Nancy H. Shanks
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