Mini Casi Bethesda

Bethesda Mining Company

To be able to analyze the project, we need to calculate the project’s NPV, IRR, MIRR, Payback Period, and Profitability Index.
Since net working capital is built up ahead of sales, the initial cash flow depends in part on this cash outflow. So, we will begin by calculating sales. Each year, the company will sell 600,000 tons under contract, and the rest on the spotmarket. The total sales revenue is the price per ton under contract times 600,000 tons, plus the spot market sales times the spot market price. The sales per year will be:

|  |Year |
|  |1 |2 |3 |4 |
|Contract |20,400,000|$20,400,000 |$20,400,000 |$20,400,000 |
|Spot |$2,000,000 |$5,000,000 |$8,400,000 |$5,600,000 |
|Total |$22,400,000 |$25,400,000 |$28,800,000 |$26,000,000 |

The current after-tax value of the land is an opportunity cost. The initial outlay for net working capital is thepercentage required net working capital times Year 1 sales, or:
Initial net working capital = .05($22,400,000) = $1,120,000
So, the cash flow today is:
Equipment –$30,000,000
Land –5,000,000
NWC –1,120,000
Total –$36,120,000

Now we can calculate the OCF each year. The OCF is:

|  |Year|
|  |1 |2 |3 |4 |5 |6 |
|Annual |$22,400,000 |$25,400,000 |$28,800,000 |$26,000,000 |  |  ||Revenue | | | | | | |
|Less: Variable |$8,450,000 |$9,425,000 |$10,530,000 |$9,620,000 |  |  |
|Costs | || | | | |
|Less: Fixed |$2,500,000 |$2,500,000 |$2,500,000 |$2,500,000 |$4,000,000 |$6,000,000 |
|Costs | | | || | |
|Less: Depreciation |$4,290,000 |$7,350,000 |$5,250,000 |$3,750,000 |  |  |
|EBIT |$7,160,000 |$6,125,000 |$10,520,000 |$10,130,000 |($4,000,000) |($6,000,000) |
|Tax @ 34%|$2,434,400 |$2,082,500 |$3,576,800 |$3,444,200 |($1,360,000) |($2,040,000) |
|Net Income |$4,725,600 |$4,042,500 |$6,943,200 |$6,685,800 |($2,640,000) |($3,960,000) |
|Add: Depreciation |$4,290,000 |$7,350,000|$5,250,000 |$3,750,000 |  |  |
|OCF |$9,015,600 |$11,392,500 |$12,193,200 |$10,435,800 |($2,640,000) |($3,960,000) |

Years 5 and 6 are of particular interest. Year 5 has an expense of $4 million to reclaim the land, and
it is the only expense for...