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Question A Bullock Gold Mining

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Year 0 1 2 3 4 5 6 7 8 9 Required return

$ $ $ $ $ $ $ $ $ $

Cash flow (600,000,000) 75,000,000 120,000,000 160,000,000 130,000,000 240,000,000 180,000,000 210,000,000 90,000,000 (95,000,000) 12%

Output area:

Payback period IRR IRR MIRR Profitability index NPV $

4.48 15.66% =IRR(D8:D17) -58.72% =IRR(D8:D17,-0.99) 13.55% =MIRR(D8:D17,D19,D19) 1.14 =NPV(D19,D9:D17)/-D8 83,590,661.41 =NPV(D19,D9:D17)+D8

Since the NPV of the mine is positive, its IRR exceeds the required rate of return and payback period is within the life of the project, the company should open the mine.

Question B Planning for Growth at S&S Air


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Sales COGS Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income Dividends Add to RE Assets Current Assets Cash Accounts rec. Inventory Total CA Fixed assets Net PP&E

$ 30,499,420 22,224,580 3,867,500 1,366,680 $ 3,040,660 478,240 $ 2,562,420 1,024,968 $ 1,537,452 $ $ 560,000 977,452 Liabilities & Equity Current Liabilities Accounts Payable $ 689,000 Notes Payable 2,230,000 Total CL $ 2,919,000 Long-term debt $ 16,122,400 Shareholder Equity Common stock Retained earnings Total Equity Total L&E $ 5,320,000

441,000 508,400 1,237,120 2,186,520

350,000 9,719,920 $ 10,069,920 $ 18,308,920

Total Assets Growth rate Minimum FA purchase

$ 18,308,920 12% 5,000,000

Output area:

Return on assets Return on equity Retention ratio Internal growth rate Sustainable growth rate Sales COGS Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income Dividends Add to RE Assets Current Assets Cash Accounts rec. Inventory Total CA Fixed assets Net PP&E $

8.40% 15.27% 0.64 5.64% 10.75% $ 34,159,350 24,891,530 4,331,600 1,366,680 $ 3,569,541 478,240 $ 3,091,301 1,236,520 $ 1,854,780 $ $ 675,583 1,179,197 Liabilities & Equity Current Liabilities Accounts Payable $ 771,680 Notes Payable 2,230,000 Total CL $ 3,001,680 Long-term debt $ 18,057,088 Shareholder Equity Common stock Retained earnings Total Equity Total L&E $ 5,320,000

493,920 569,408 1,385,574 2,448,902

350,000 10,899,117 $ 11,249,117 $ 19,570,797

Total Assets EFN

$ 20,505,990 $ 935,193

EFN if minimum FA purchase is Depreciation as a percentage of sales New fixed assets

5,000,000

8.48% $ 21,122,400

Sales COGS Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income Dividends Add to RE Assets Current Assets Cash Accounts rec. Inventory Total CA Fixed assets Net PP&E

$ 34,159,350 24,891,530 4,331,600 1,790,525 $ 3,145,696 478,240 $ 2,667,456 1,066,982 $ 1,600,473 $ $ 582,955 1,017,519 Liabilities & Equity Current Liabilities Accounts Payable $ 771,680 Notes Payable 2,230,000 Total CL $ 3,001,680 Long-term debt $ 21,122,400 Shareholder Equity Common stock Retained earnings Total Equity Total L&E $ 5,320,000

493,920 569,408 1,385,574 2,448,902

350,000 10,737,439 $ 11,087,439 $ 19,409,119

Total Assets EFN

$ 23,571,302 $ 4,162,184

1.- The internal growth rate is the growth rate the company can achieve with no outside financing of any sort. The sustainable growth rate is the growth rate the company can achieve by raising outside debt based on its retained earnings and current capital structure. 2.The company can grow at this rate by changing the way it operates. For example, if profit margin increases, say by reducing costs, the ROE increases, it will increase the sustainable growth rate. In general, as long as the company increases the profit margin, total asset turnover, or equity multiplier, the higher growth rate is possible. Note however, that changing any one of these will have the effect of changing the pro forma financial statements. 3.- Since the fixed assets have increased at a faster percentage than sales, the capacity utilization for next year will decrease.