BETHESDA MINING COMPANY
Bethesda Mining is trying to determine whether or not it should accept a contract to open a new mine in order to be able to provide coal for Mid-Ohio Electric Company. They want to analyze the project to determine whether or not they should open the new mine. They want to find the payback period, profitably index, net present value, and internal rate of return for the new strip mine.
In order to find the payback period for the new mine, we must first calculate the cash flows for the project. This can be done by creating a worksheet for cash flows similar to the one found in the book on page 274. Table 2.1(found on the following page) shows the worksheet of cash flows for Bethesda if they were to open the new mine. Using the information given in the text about the case as well as additional calculations, the chart was filled out in order to determine the cash flows for Bethesda.
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 |
INVESTMENTS: | | | | | | | |
(1) Equipment | $ (46,000,000.00) | | | | $ 22,572,752.00 | | |
(2) Accumulated Depreciation | | $ 6,573,400.00 | $ 17,838,800.00 | $ 25,884,200.00 | $ 31,629,600.00 | | |
(3) Opportunity Cost (land) | $ (7,500,000.00) | | | | | | |
(4) Net working capital | $ 2,774,500.00 | $ 3,020,500.00 | $ 3,102,500.00 | $ 2,651,500.00 | | | |
(5) Change in net working capital | $ (2,774,500.00) | $ (246,000.00) | $ (82,000.00) | $ 451,000.00 | $ 2,651,500.00 | | |
(6) Total Cash flow of investments (1) + (3) + (5) | $ (56,274,500.00) | $ (246,000.00) | $ (82,000.00) | $ 451,000.00 | $ 25,224,252.00 | | |
| | | | | | | |
INCOME: | | | | | | | |
(7) Sales Revenues | | $ 55,490,000.00 | $ 60,410,000.00 | $ 62,050,000.00...