During this week, finish working on Case II, which is due at the end of this week. This is the Chapter Case: Bullock Gold Mining, at the end of Chapter 8 on page 274 of your text. This case will require that you use Excel to calculate the Net Present Value, Internal Rate of Return, Modified Internal Rate of Return, and payback period of a project. You will need to provide answers to Steps 1 and 2 in the exercise using Excel to present your calculations. (Step 3 is not required1. Submissions with only numbers and no formulas or functions will not receive credit for this assignment. Your submission must be neatly organized and must clearly present your work and results. For Step 2, you must submit a Microsoft Word document that summarizes the problem, provides your analysis of the work performed in Step 1, and recommends whether the company should open the mine, as described in the case.

Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She also has projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost $625 million today, and it will have a cash outflow of $90 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 nearby table.

Bullock Gold Mining has a 12 percent required return on all of its gold mines.

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

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.

CHAPTER CASE Bullock Gold Mining

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. Bonus question: Most spreadsheets do not have a built-in formula to calculate the payback period. Write a VBA script that calculates the payback period for a project