The Concord Silver Company (Concord) is a silver mining company engaged in the exploration, development and production

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Question:

The Concord Silver Company ("Concord") is a silver mining company engaged in the exploration, development and production of silver mining throughout Canada, Mexico and South America. It is one of the largest silver producers in the world. The company has great potential as it seeks to expand production at several new mining sites around the world.

Concord has hired SRK Consulting ("SRK"), a major geology firm, to analyze the silver production value from one of its new mines. SRK has completed its analysis and determined that the new mine would be productive for eight years after which the silver would be completely mined.

SRK has provided Concord with its financial analysis on the new mine. Specifically, SRK has projected that it would cost $850 million to open the mine and it would cost $75 million nine years from today to properly close the mine and reclaim the area surrounding it. Years one through eight would generate positive cash flows.

SRK has prepared Table 1 which shows the projected cash flows from the mine for each year.

TABLE 1

YEAR CASH FLOWS

0 -$850,000,000

1 170,000,000

2 190,000,000

3 205,000,000

4 265,000,000

5 235,000,000

6 170,000,000

7 160,000,000

8 105,000,000

9 -75,000,000

Year 0 represents the year that the mine will open and the costs to open the mine. Year 9 represents the year when the mine will close and the costs incurred to shutter the mine and reclaim the surrounding area.

Concord has asked you to assist them in analyzing this investment opportunity. Concord has informed you that they have a 12% required rate of return on all of its silver mines.

QUESTIONS:

1. Calculate the following. Show all keystrokes used and Bold Type your answer.

a. Payback period

b. Net present value

c. Internal rate of return

d. Profitability index

2. Based on your analysis, should Concord open the mine? Answer "Yes" or "No" and provide an explanation that justifies your answer (no more than 1 paragraph).