Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal

Bullock Gold Mining Case Study Solution

Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new
gold mine in South Dakota. Dan Dority, the companys 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 companys 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.

Alma has used 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 will cost $500 million today, and it will have a cash
outflow of $80 million nine years from today in costs associated with
closing the mine and reclaiming the area surrounding it. The expected
cash flows each year from the mine are shown in the following table.
Bullock Mining has a 12 percent required return on all of its gold
mines.

Year Cash Flow
0 -$500,000,000
1 60,000,000
2 90,000,000
3 170,000,000
4 230,000,000
5 205,000,000
6 140,000,000
7 110,000,000
8 70,000,000
9 -80,000,000

1. Construct a spreadsheet to calculate the payback period, internal
rate of return, modified internal rate of return, and net present value
of the proposed mine.
2. Based on your analysis, should the company open the mine?
3. Most spreadsheets do not have a built-in formula to calculate the
payback period. Write a YBA script that calculates the payback period
for a project.