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Excel Master It$!$ Problems

For this Master It$!$ assignment, refer to the Goodweek Tires, Inc., case at the end of this chapter. For your convenience, we have entered the relevant values such as the price and variable costs in the case on the next page. For this project, answer the following questions:

EXCEL MASTER

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a$.$ What is the profitability index of the project?

b$.$ What is the IRR of the project?

c$.$ At what OEM price would Goodweek Tires be indifferent to accepting the project? Assume the replacement market price is constant.

d$.$ At what level of variable costs per unit would Goodweek Tires be indifferent to accepting the project?MM M

Bethesda Mining Company compuny operates depp mines as well as alerip mines. Most of lie coud mined is wald under contract, with owess prodiction mold on the spof market. however, a combination of increased demasd hor coal and new pollioes rodaction inctnologies has led to an improend marker demand for the neet four yours. Bethesde Misier doer not have roouph eases clecory af as oiving mites bo puarantee the contract. The company is considering openise a strip mine in Ohis on $5000$ aves of land purchused $90$ reas apo for $$4\mathrm{.}2$ millines. Rased on a recent appraikal the compary ferlh it could receive $$6\mathrm{.}7$ millios on as aflertax havir if is wold the land lidey. compary would nemove the coal asd lowe the land is an unoculte coestibes. Changes in mining mepulations now force a compury to reclaim the land that is$,$ whes the mising is completied, the land mas he mestuend se sear ias original condicion. The land can then be ased for ocher $$105$ malion. The equipenent will be depreciuned on a sevesyere MNCNS shotale. The contract ruas for only four jean, At thas time the coal flom the site will be encirely mined. The compary focls lyet the equipenest cas be seld for $60$ percent of its initial purchase price in four

The contract cals for the delinery of $500,000$ nows of coal per year at a proce a$/$ $$99$ per bos. Bethesda Mining feels that coul prodiction wit outuide company for reclanation of all the compary's mrip mises. it in crimated ter cost of meclamation will be $52\mathrm{.}4$ million. In order to gotBethesda Mining Company

Bethesda Mining is a midsized coal mining company with $20$ mines located in Ohio, Pennsyfvania. West Virginia, and Kentucky. The company operates deep mines as well as strip mines. Most of the coal mined is sold under contract, with excess production sold on the spot market.

The coal mining industry, especially high$-$sulfur coal operations such as Bethesda, has been handhit by ervironmental regulations. Recently, bowever, a combination of increased demand for coal and new pollution reduction technologies has led to an improved market demand for high$-$sulfur coal. Bethesda has been approached by Mid$-$Ohio Electric Company with a request to supply coal for its electric generators for the next four years. Bethesda Mining does not have enough evcess capacity at its existing mines to guarantee the contract. The company is considering opening a strip mine in Ohio on $$,000$ acres of land purchased $10$ years apo for $$4\mathrm{.}2$ million. Based on a recent appraisal, the company feels it could receive $$6\mathrm{.}7$ million on an aftertax basis if it sold the land today:

Strip mining is a process where the layers of topsoil above a coal vein are removed and the exposed coul is removed. Some time ago, the company would remove the coal and leave the land in an unusable condition. Changes in mining regulations now force a company to reclaim the land; that is$,$ when the mining is completed, the land must be restored to near its original condition. The land can then be used for other purposes. Because it is currently operating at full capacity, Bethesda will need to purchase additional necessary equipment, which will cost $$105$ million. The equipment will be depreciated on a sevenyear M$.$ACRS schedule. The contract runs for only four years. At that time the coal from the site will be entirely mined. The company feels that the equipment can be sold for $60$ percent of its initial purchase price in four years. However. Bethesda plans to open another strip mine at that time and will use the equipment at the new mine.

The contract calls for the delivery of $$00,000$ tons of coal per year at a price of $$89$ per ton. Bethesda Mining feels that coal production will be $660,000$ tons, $720,000$ tons, $760,000$ tons, and $620,000$ tons, respectively, over the neat foor years. The excess production will be sold in the spot market at an average of $$77$ per ton. Variable costs amount to $$30$ per ton, and flued costs are $$4\mathrm{.}1$ mi