Project Details: 4 yr contract for 500,000 tons of coal per year @ $82 per ton. 4 yr production production in tons: 620,000, 680,000, 70,000, 5!0,000 "i#ed cost: $4. %illion per year &aria'le cost: $ per ton ()*: 5 percent of sales. +e ()* -ill 'e 'uilt up in te year prior to te sales pot ales of e#cess coal/ $76 per ton and: Purcase cost $5 %illion, eld ten years, after/ta# after/ta# sale 1currently $5.5 %illion $2.7 %illion re3uired recla%ation at yr 5 Donation of land for $6 %illion deduction 3uip%ent cost of $85 %illion, 7 year * depreciation 3uip%ent sale 60 of purcase price after co%pletion of contract +a# +a# rate: 8 ate of return 2
Total Unit Sales Projected Revenue
620000 Year 0
Contract Price per Unit Contract Unit Sales Total Contract Sales Spot Price per Unit Spot Unit Sales Total Spot Sales Total Sales
Year 1
$82.00 500,000 41,000,000.00 $76.00 120,000 9,120,000.00 $50,120,000.00
Operating Cash Flows
Unit Sales Variable Cost $!1"ton# i%e& Cost 'ecla(ation ) *an& &onation +epreciation arnin-s beore Ta%es /T# Ta%es et inco(e +epreciation Total peratin- Cas lo3s
620000 $19,220,000.00# $4,100,000.00# $0.00 $12,146,500.00# $14,65!,500.00 $5,568,!!0.00# $9,085,170.00 $12,146,500.00 $21,2!1,670.00
Investment Cash Flows
ip(ent *an& opportnit cost# Net Working Capital /e-innin- C n&in- C et orin- Capital cas lo3 Total n:est(ent Cas lo3s
$85,000,000.00# $5,500,000.00#
$0.00
$2,506,000.00 $2,506,000.00# $9!,006,000.00#
$2,506,000.00 $2,7!4,000.00 $228,000.00# $228,000.00#
$9!,006,000.00# $9!,006,000.00#
$21,2!1,670.00 $228,000.00# $21,00!,670.00
Projected Total Cash Flow
peratin- cas lo3 n:est(ent Cas lo3s Total pro;ect cas lo3 Assumptions
'eire& 'etrn Ta% 'ate et Present !alue Internal Rate o" Return
12.00< !8.00< $5,718,491.29 Do not accept project a 14.!9<
Pro"ita#ilit$ Inde%
=
=
PV o cas lo3s sbseent to initial in:est(ent nitial in:est(ent Proitabilit n&e% =
>1.06
680000 Year &
7!0000 Year '
590000 Reclamation Year ( $82.00 500,000 41,000,000.00 $76.00
$82.00 500,000 41,000,000.00 $76.00 180,000 1!,680,000.00 $54,680,000.00
$82.00 500,000 41,000,000.00 $76.00 2!0,000 17,480,000.00 $58,480,000.00
90,000 6,840,000.00 $47,840,000.00
680000 $21,080,000.00# $4,100,000.00# $0.00 $20,816,500.00# $8,68!,500.00 $!,299,7!0.00# $5,!8!,770.00 $20,816,500.00 $26,200,270.00
7!0000 $22,6!0,000.00# $4,100,000.00# $0.00 $14,866,500.00# $16,88!,500.00 $6,415,7!0.00# $10,467,770.00 $14,866,500.00 $25,!!4,270.00
590000 $18,290,000.00# $4,100,000.00# $0.00 $10,616,500.00# $14,8!!,500.00 $5,6!6,7!0.00# $9,196,770.00 $10,616,500.00 $19,81!,270.00
$0.00
$0.00
$41,710,520.00
$2,7!4,000.00 $2,924,000.00 $190,000.00# $190,000.00#
$2,924,000.00 $2,!92,000.00 $5!2,000.00 $5!2,000.00
$2,!92,000.00 $0.00 $ 2,!92,000.00 $44,102,520.00
$26,200,270.00 $190,000.00# $26,010,270.00
$25,!!4,270.00 $5!2,000.00 $25,866,270.00
$19,81!,270.00 $44,102,520.00 $6!,915,790.00
the NPV is less than the sale price of the land.
Year )
$2,700,000.00# $2,700,000.00# $1,026,000.00 $1,674,000.00# $0.00 $1,674,000.00#
$1,674,000.00# $1,674,000.00#
Sale of land Year * +ACR, -epreciation ,chedule
?ear
! ear 1 2 ! 4
!!.!!< 44.45< 14.81< 7.41<
ip(ent boo :ale $85,000,000.00 $58,446,000.00# $26,554,000.00 $6,000,000.00# $6,000,000.00# $2,280,000.00 $!,720,000.00# $0.00 $!,720,000.00#
$2,280,000.00 $2,280,000.00
$51,000,000.00 $24,446,000.00 $9,289,480.00 $41,710,520.00
5 ear
7 ear 20.00< !2.00< 19.20< 11.52<
prcase acc( &ep boo sale price ta%able -ain ta% on -ain c ro( sale
10 ear 14.29< 10.00< 24.49< 18.00< 17.49< 14.40< 12.49< 11.52<
