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Bullock Gold Mining 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. Year Cash Flow 0 -$625,000,000 1 70,000,000 2 129,000,000 3 183,000,000 4 235,000,000 5 210,000,000 6 164,000,000 7 108,000,000 8 86,000,000 9 - 90,000,000 The expected cashflows of the project are presented in the above table and below is the capital structure of the mine. The mine is in the 25% tax rate. Debt: 40,000 6.5 percent coupon bonds outstanding, 20 years to maturity, selling for 105 of par, the bonds have a $1,000 par value each and make annual payments. 60,000 6.2 percent coupon bonds outstanding, 25 years to maturity, selling for 98 percent of par; the bonds have a $1,000 par value each and make semiannual payments. Debt: Common stock: 1,350,000 shares outstanding, selling for $97 per share; the beta is 1.15. Preferred stock: 90,000 shares of 5.7 percent preferred stock outstanding, par value of $ 100, selling for $95 per share. Market: 7 percent expected market risk premium; 3.8 percent risk-free rate. 1. Calculate the WACC for the mine. 2. Calculate the NPV, IRR, Profitability Index and payback period for the project. 3. Briefly explain for each of the four items in question 2, if the project should be accepted or rejected and why, based on the rule. Assume that the required return of the project is the cost of capital of the mine and that they require a payback period of 5 years