• Note : Dont use excel , give the answer handwritten

Seth Bullock, the owner of Bullock Gold Mining, is evaluating YEAR CASH FLOW

a new gold mine in South Dakota. Dan Dority, the company's

geologist, has just fi nished his analysis of the mine 0 (645,000)

site. He has estimated that the mine would be productive for 1 125,000

eight years, after which the gold would be completely mined. 2 245,000

Dan has taken an estimate of the gold deposits to Alma 3 256,000

Garrett, the company's financial officer. Alma has been asked 4 197,000

by Seth to perform an analysis of the new mine and present 5 185,000

her recommendation on whether the company should open 6 (65,000)

the new mine.

Alma has used the 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 QUESTIONS

will cost $645 thousandtoday, and it will have a cash outflow of

$65 million six years from today in costs associated with closing 1.Calculate the payback period, dscounted payback periodinternal rate

the mine and reclaiming the area surrounding it. The of return, net present value and profitablity index of the proposed mine.

expected cash flows each year from the mine are shown in the

table. Bullock Mining has a 12 percent required return on all of 2. Based on your analysis, should the company open the

its gold mines. mine?