# 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.