Strip-Mining

'000 $

Geological costs

240

Equipment

Discounting Factor

8%

Risk Free

6%

3000

WC requirement

200

Salvage Value

1000

Land

400

Equipment

600

Tax-rate

30%

Risk Adjusted Rate of Return Method

Year

Expenditure
WC
Salvage Value

-3440
NPV

Investment
Net CFs
Post tax CFs
WC
Salvage Value
NPV

400

400

400

400

220

220

$400

$400

$400

$400

$220

$220

-3240
-200

Revenues
Net CFs

($992.21)
-3440
400
280

400
280

400
280

400
280

220
154

220
154

280

280

280

280

154

154

($1,559.80)
CER Method (Hughes's suggestion)

Year
Discount rate
Expenditure
WC
Salvage Value
Revenues

400

400

400

400

220

220

10%
-3240
-200

Net Cash Flows

CV
CERs

-3440

400
0.9
0.85

400
0.9
0.85

400
0.9
0.85

400
0.9
0.85

220
1.1
0.78

220
1.1
0.78

CER adjusted CFs

-3440

340

340

340

340

171.6

171.6

340
238

340
238

340
238

340
238

171.6
120.12

171.6
120.12

238

238

238

238

120.12

120.12

NPV
Investment
Net CFs
Post tax CFs
WC
Salvage Value
NPV

($1,982.23)
-3440

($1,956.91)
CER Method (Hughes's suggestion-revised)

Year

Discount rate
Expenditure
WC
Salvage Value

400

400

400

400

220

220

6% risk-free rate
-3240
-200

Revenues
Net Cash Flows
CV
CERs

-3440

400
0.9
0.85

400
0.9
0.85

400
0.9
0.85

400
0.9
0.85

220
1.1
0.78

220
1.1
0.78

CER adjusted CFs

-3440

340

340

340

340

171.6

171.6

340
238

340
238

340
238

340
238

171.6
120.12

171.6
120.12

238

238

238

238

120.12

120.12

NPV
Investment
Net CFs
Post tax CFs
WC
Salvage Value
NPV

($1,771.36)
-3440

($1,601.88)
CER Method (John McPhee's suggestion-revised)

Year

Discount rate
Expenditure
WC
Salvage Value
Revenues

400

400

400

220

220

8% Cost of capital
-3240
-200

400

Net Cash Flows

CV
CERs

-3440

400
0.9
0.85

400
0.9
0.85

400
0.9
0.85

400
0.9
0.85

220
1.1
0.78

220
1.1
0.78

CER adjusted CFs

-3440

340

340

340

340

171.6

171.6

340
238

340
238

340
238

340
238

171.6
120.12

171.6
120.12

238

238

238

238

120.12

120.12

NPV
Investment
Net CFs
Post tax CFs
WC
Salvage Value
NPV

($1,882.89)
-3440

($1,794.19)

n Method
7

10

200
1000
220

100

100

100

$220

$100

$100

$1,300

220
154

100

154

100

100

70

70

70

70

70
200
1000
1270

gestion)
7

10

200
1000
220

100

100

100

220
1.1
0.78

100
1.9
0.15

100
1.9
0.15

1300
1.9
0.15

171.6

15

15

195

171.6
120.12

15
10.5

15
10.5

120.12

10.5

10.5

195
136.5
200
1000
1336.5

tion-revised)
7

10

200
1000
220

100

100

100

220
1.1
0.78

100
1.9
0.15

100
1.9
0.15

1300
1.9
0.15

171.6

15

15

195

171.6
120.12

15
10.5

15
10.5

120.12

10.5

10.5

195
136.5
200
1000
1336.5

gestion-revised)
7

10

200
1000
220

100

100

100

220
1.1
0.78

100
1.9
0.15

100
1.9
0.15

1300
1.9
0.15

171.6

15

15

195

171.6
120.12

15
10.5

15
10.5

120.12

10.5

10.5

195
136.5
200
1000
1336.5

Underground-Mining
Discounting Factor
Geological costs

240

8%
Risk Free

Equipment

1750

WC requirement

200

Salvage Value

450

Land

300

Equipment

150

6%
Tax-rate

30%

Risk Adjusted Rate of Return Method

Year

Expenditure
WC
Salvage Value

360

360

360

360

230

230

360

360

360

360

230

230

360
252

360
252

360
252

360
252

230
161

230
161

252

252

252

252

161

161

-1990
-200

Revenues
Net CFs

-2190

NPV
Investment
Net CFs
Post tax CFs
WC
Salvage Value

($65.40)
-2190

NPV

($146.95)
CER Method (Hughes's suggestion)

Year

Discount rate
Expenditure
WC
Salvage Value

360

360

360

360

230

230

20%
1990
200

Revenues
Net Cash Flows
CV
CERs

-2190

360
0.9
0.85

360
0.9
0.85

360
0.9
0.85

360
0.9
0.85

230
1.2
0.74

230
1.2
0.74

CER adjusted CFs

-2190

306

306

306

306

170.2

170.2

NPV
Investment
Net CFs
Post tax CFs
WC
Salvage Value
NPV

($1,165.09)
-2190
306
214.2

306
214.2

306
214.2

306
214.2

170.2
119.14

170.2
119.14

214.2

214.2

214.2

214.2

119.14

119.14

($1,278.75)
CER Method (Hughes's suggestion-revised)

Year

Discount rate
Expenditure
WC
Salvage Value

360

360

360

360

230

230

6% risk-free rate
1990
200

Revenues
Net Cash Flows
CV
CERs

-2190

360
0.9
0.85

360
0.9
0.85

360
0.9
0.85

360
0.9
0.85

230
1.2
0.74

230
1.2
0.74

CER adjusted CFs

-2190

306

306

306

306

170.2

170.2

NPV
Investment
Net CFs
Post tax CFs

($573.28)
-2190
306
214.2

306
214.2

306
214.2

306
214.2

170.2
119.14

170.2
119.14

WC
Salvage Value
214.2
NPV

214.2

214.2

214.2

119.14

119.14

($388.22)
CER Method (John McPhee's suggestion-revised)

Year

Discount rate
Expenditure
WC
Salvage Value

360

360

360

360

230

230

8% Cost of capital
1990
200

Revenues
Net Cash Flows
CV
CERs

-2190

360
0.9
0.85

360
0.9
0.85

360
0.9
0.85

360
0.9
0.85

230
1.2
0.74

230
1.2
0.74

CER adjusted CFs

-2190

306

306

306

306

170.2

170.2

NPV
Investment
Net CFs
Post tax CFs
WC
Salvage Value
NPV

($690.22)
-2190

($584.33)

306
214.2

306
214.2

306
214.2

306
214.2

170.2
119.14

170.2
119.14

214.2

214.2

214.2

214.2

119.14

119.14

d
7

10

200
450
230

130

130

130

230

130

130

780

230
161

130

161

130
91

91

91

91

780
546
200
1000
1746

10

-200
-450
230

130

130

130

230
1.2
0.74

130
1.8
0.33

130
1.8
0.33

780
1.8
0.33

170.2

42.9

42.9

257.4

170.2
119.14

42.9
30.03

42.9
30.03

119.14

30.03

30.03

257.4
180.18
200
1000
1380.18

sed)
7

10

-200
-450
230

130

130

130

230
1.2
0.74

130
1.8
0.33

130
1.8
0.33

780
1.8
0.33

170.2

42.9

42.9

257.4

170.2
119.14

42.9
30.03

42.9
30.03

257.4
180.18

119.14

30.03

30.03

200
1000
1380.18

evised)
7

10

-200
-450
230

130

130

130

230
1.2
0.74

130
1.8
0.33

130
1.8
0.33

780
1.8
0.33

170.2

42.9

42.9

257.4

170.2
119.14

42.9
30.03

42.9
30.03

119.14

30.03

30.03

257.4
180.18
200
1000
1380.18

Sigma
SM
1
2
3
4
5
6
7
8
9
10
Strip

Underground mining

Sigma
UG

Mean
SM

Mean
UG

360
324
400
360
360
324
400
360
360
324
400
360
360
324
400
360
242
276
220
230
242
276
220
230
242
276
220
230
190
234
100
130
190
234
100
130
190
234
100
130
Expected earnings
0.08
Mean
Rf
PV of Rf CER
400
1.06
0.925926
457.92
400
1.1236
0.857339
524.226816
400
1.191016
0.793832
600.134859
400
1.593848075
0.73503 867.3650837
220
2.396558193 0.680583
774.692653
220
16.39387173
0.63017 5723.303102
220
454.0627267
0.58349 171200.4185
100
5217377509 0.540269
9.657E+11
100
8.20432E+23 0.500249 1.64005E+26
100
1.49459E+97 0.463193 3.2267E+99
Expected earnings
0.08
Mean
Rf
PV of Rf CER
360
1.06
0.925926
412.128
360
1.1236
0.857339 471.8041344
360
1.191016
0.793832 540.1213731
360
1.593848075
0.73503 780.6285754
230
2.396558193 0.680583 809.9059554
230
16.39387173
0.63017 5983.453243
230
454.0627267
0.58349 178982.2557
130
5217377509 0.540269 1.25541E+12
130
8.20432E+23 0.500249 2.13206E+26
130
1.49459E+97 0.463193 4.1947E+99

Sigma
SM

Sigma
UG

Mean
SM

Mean
UG

360

324

400

360

2
3
4
5
6
7
8
9
10
Strip

Underground

360
360
360
242
242
242
190
190
190
300
Expected earnings SD
400
400
400
400
220
220
220
100
100
100
1000
3560

Expected earnings SD
360
360
360
360
230
230
230
130
130
130
450
2970

324
324
324
276
276
276
234
234
234

400
400
400
220
220
220
100
100
100
135
1000
Variance
360
1066.583
360
1066.583
360
1066.583
360
1066.583
242
899.0439
242
899.0439
242
899.0439
190
810.8021
190
810.8021
190
810.8021
300
876.3561
10272.23
CV
2.885457

324
324
324
324
276
276
276
234
234
234
135

Variance
1018.234
1018.234
1018.234
1018.234
958.6866
958.6866
958.6866
895.8906
895.8906
895.8906
647.9583
10284.63
CV
3.462837

360
360
360
230
230
230
130
130
130
450

Note :

Assumed that the certainty equivalent factor is independent of the discounting factor used to discount

Coefficient
of Variation
SM
0.90
0.90
0.90
0.90
1.10
1.10
1.10
1.90
1.90
1.90

Coefficient
CER of Variation
SM
UG

CER
UG

0.85
0.85
0.85
0.85
0.78
0.78
0.78
0.15
0.15
0.15

0.85
0.85
0.85
0.85
0.74
0.74
0.74
0.33
0.33
0.33

0.90
0.90
0.90
0.90
1.20
1.20
1.20
1.80
1.80
1.80

Risk-adjusted cash flow

432
466.56
503.8848
544.195584
323.2521769
349.112351
377.0413391
185.093021
199.9004627
215.8924997

Risk-adjusted cash flow

388.8
419.904
453.49632
489.7760256
337.9454577
364.9810943
394.1795818
240.6209273
259.8706015
280.6602496

Coefficient
of Variation
SM
0.90

Coefficient
CER of Variation
SM
UG

CER
UG

0.85

0.85

0.90

0.90
0.90
0.90
1.10
1.10
1.10
1.90
1.90
1.90

0.85
0.85
0.85
0.78
0.78
0.78
0.15
0.15
0.15

0.90
0.90
0.90
1.20
1.20
1.20
1.80
1.80
1.80

Expected earnings
400
400
400
400
1600
CV
220
220
220
660
CV
100
100
100
1000
1300
CV

SD Variance
360 657.267069
360 657.267069
360 657.267069
360 657.267069
2629.06828
1.64316767
242 326.312733
242 326.312733
242 326.312733
978.9382
1.4832397
190 477.493455
190 477.493455
190 477.493455
300
300
1432.48037
1.10190797

Expected earnings
360
360
360
360
1440
CV
230
230
230
690
CV
130
130
130
450
840
CV

SD Variance
324 633.845407
324 633.845407
324 633.845407
324 633.845407
2535.38163
1.76068169
276 344.499637
276 344.499637
276 344.499637
1033.49891
1.49782451
234 523.239907
234 523.239907
234 523.239907
135 338.747694
1569.71972
1.86871395

0.85
0.85
0.85
0.74
0.74
0.74
0.33
0.33
0.33

ependent of the discounting factor used to discount the cash-flows.