Bullock Gold Mining Case
The Bullock Gold Mining Assignment
The estimates provided by Danto can be used by Alma to determine the revenue that is
expected from the gold mine. The expense of opening the mine and the annual operating
expenses is determined. Opening the mine will cost an initial capital of $750 million with a cash
outflow of $75 million for 9 years. The expected cash flows from the mine for the 9 year period
is represented by the table shown below.
Table 1. Summary Table
Year Cash flow $ (million)
0 -$750
1 130
2 180
3 190
4 245
5 205
6 155
7 135
8 95
BULLOCK GOLD MINING CASE 2
9 -75
Discussion
Payback Period
The payback period is the time taken by the investment to recoup the initial cash injected
into the project. Lucrative projects have shorter payback period than the non-lucrative project
that tends to have a long payback period. The calculation of the payback period of this case is
summarized in the appendix A.
Net Present Value
The Net Present Value (NPV) involves the calculations of the percentage return rate, less
the initial cash outlay. The NPV bigger than 1, implies that the project is lucrative and
economically viable and is worth the risk (Griffin, 2009). On the other hand, the NPV value
which is less than one implies that the investment is less lucrative since the returns will be less
than the costs involved in the project (Cornett, Adair, & Nofsinger, 2013). In this case, the
calculations of NPV are shown in appendix B.
Internal Rate of Returns (IRR)
BULLOCK GOLD MINING CASE 3
In this case, a rate of 12% provides an IRR of $1,594,792,833. Since it can be discounted
on both the higher and the lower rate, the project IRR higher than the discounting rate of returns
is acceptable as shown in the Appendix.
Modified Internal Rate of Return
The modified IRR operates on the principle that the positive cash flows are reinvented at
the firm’s cost of capital and the firms’ financial cost are done with the initial capital outlay
(Bragg, 2009). In this regard, the modified IRR stands out as the most precise way of
determining the cost and profitability of an investment as can be seen in the appendix Cullen, &
Broadbent, 2012).
Conclusion
The Bullock Gold Mining case can be analyzed by the use of Payback Period, NPV, IRR,
and modified IRR. From the calculations in the appendix, all the above calculations show
positive results to imply that the project is worth investing in. Therefore, the Ballock Gold mine
is a viable project.
BULLOCK GOLD MINING CASE 4
References
Cornett, M., Adair, T., & Nofsinger, J. (2013).M:Finance.McGraw-Hill/Irwin; 2 edition
Bragg, S. (2009). Accounting Control Best Practices. Wiley
Cullen, J., & Broadbent, M. (2012). Managing Financial Resources (CMI Diploma in
Management Series).Routledge; 3 edition
Griffin, M. (2009). MBA Fundamentals Accounting and Finance. Kaplan Publishing
BULLOCK GOLD MINING CASE 5
Appendix A
Payback Period represents the number of years before the project pays off
Year 0= -750
Year 1=-750 130= -620
Year 2=-750 130 180= – 440
Year 3= -750 130 180 190= -250
Year 4= -750 130 180 190 245= -5
Year 4= -750 130 180 190 245 205= 200
This gold mine project will pay off between the 4 th and the 5 th year
5/205= 0.0244
Appendix B and 12% rate
Initial investment ($750,000,000)
BULLOCK GOLD MINING CASE 6
1st year’s return $130,000,000
2nd year’s return $180,000,000
3rd year’s return $190,000,000
4th year’s return $245,000,000
5th year’s return $205,000,000
6th year’s return $155,000,000
7th year’s return $135,000,000
8th year’s return $95,000,000
$1,594,792,883
Appendix C
IRR can be calculated as follows
Description Data Data
initial investment ($750,000,000) ($750,000,000)
1st years returns $130,000,000 $130,000,000
2nd years returns $180,000,000 $180,000,000
3rd year returns $190,000,000 $190,000,000
4th year returns $245,000,000 $245,000,000
BULLOCK GOLD MINING CASE 7
5th year returns $205,000,000 $205,000,000
6th year returns $155,000,000 $155,000,000
7th year returns $135,000,000 $135,000,000
8th year returns $95,000,000 $95,000,000
16% 14%
Appendix D
Modified IRR can be calculated as follows
Description data
MIRR after 3
year
initial investment ($750,000,000) 220%
1st years returns $130,000,000
MIRR After 7
years
2nd years returns $180,000,000 613%
3rd year returns $190,000,000
4th year returns $245,000,000
5th year returns $205,000,000
6th year returns $155,000,000
7th year returns $135,000,000
BULLOCK GOLD MINING CASE 8
8th year returns $95,000,000
