Questions
Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South...
Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company's geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for eight years, after which the gold would be completely mined. Dan has taken an estimate of the gold deposits to Alma Garrett, the company's financial officer. Alma has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine.
Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost $635 million today, and it will have a cash outflow of $45 million nine years from today in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the table. Bullock Mining has a 12 percent required return on all of its gold mines.
Questions: 1. Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate of return, and the net present value of the proposed mine.
2. Based on your analysis, should the company open the mine?
3. Bonus question: Most spreadsheets does not have a built-in formula to calculate the payback period. Write a VBA script that calculates the payback period for a project.
| Year | Cashflow |
| 0 | -635,000,000 |
| 1 | 89,000,000 |
| 2 | 105,000,000 |
| 3 | 130,000,000 |
| 4 | 173,000,000 |
| 5 | 205,000,000 |
| 6 | 155,000,000 |
| 7 | 145,000,000 |
| 8 | 122,000,000 |
| 9 | -45,000,000 |
In: Finance
Cost of goods sold:
ABC Corporation reported the following data for the month of January: Inventories: Beginning Ending Raw materials 46,000 34,000 Work in process 31,000 29,000 Finished goods 27,000 55,000 Additional information: Raw materials purchases 79,000 Direct labor cost 93,000 Manufacturing overhead cost incurred 54,000 Indirect materials included in manufacturing overhead cost incurred 8,000 Manufacturing overhead cost applied to Work in Process 57,000 Calculate cost of goods sold during the month of January?
In: Accounting
Cost and Industry structure
Automobile manufacturing is an industry subject to significant economies of scale. Suppose there are four domestic auto manufacturers, but the demand for domestic autos is no more than 2.5 times the quantity produced at the bottom of the long-run average cost curve. What do you expect will happen to the domestic auto industry in the long run?
In: Economics
Measuring the cost of living.
Imagine that the government statisticians who calculate the inflation rate have been updating the basic basket of goods once every 10 years, but now they decide to update it every five years. How will this change affect the amount of substitution bias and quality/new goods bias?
In: Economics
Measuring the cost of living
Which of the price indices would be most useful for adjusting a paycheck for inflation?
In: Economics
Direct or Indirect cost
Baird Manufacturing Company makes tents that it sells directly to camping enthusiasts through a mail-order marketing program. The company pays a quality control expert $110,500 per year to inspect completed tents before they are shipped to customers. Assume that the company completed 1,570 tents in January and 1,180 tents in February. For the entire year, the company expects to produce 17,000 tents.
Required
-
If the cost objective is to determine the cost per tent, is the expert’s salary a direct or an indirect cost?
-
How much of the expert’s salary should be allocated to tents produced in January and February?
In: Accounting
Determining opportunity cost
Juanita is deciding whether to buy a suit that she wants, as well as where to buy it. Three stores carry the same suit, but it is more convenient for Juanita to get to some stores than others. For example, she can go to her local store, located 15 minutes away from where she works, and pay a marked-up price of $112 for the suit:
|
Store |
Travel Time Each Way |
Price of a Suit |
|---|---|---|
|
(Minutes) |
(Dollars per suit) |
|
| Local Department Store | 15 | 112 |
| Across Town | 30 | 89 |
| Neighboring City | 60 | 70 |
Juanita makes $26 an hour at work. She has to take time off work to purchase her suit, so each hour away from work costs her $26 in lost income. Assume that returning to work takes Juanita the same amount of time as getting to a store and that it takes her 30 minutes to shop. As you answer the following questions, ignore the cost of gasoline and depreciation of her car when traveling.
Complete the following table by computing the opportunity cost of Juanita's time and the total cost of shopping at each location.
|
Store |
Opportunity Cost of Time |
Price of a Suit |
Total Cost |
|---|---|---|---|
|
(Dollars) |
(Dollars per suit) |
(Dollars) |
|
| Local Department Store | 112 | ||
| Across Town | 89 | ||
| Neighboring City | 70 |
Assume that Juanita takes opportunity costs and the price of the suit into consideration when she shops. Juanita will minimize the cost of the suit if she buys it from the _______ .
In: Economics
What is cost of production?
meaning of cost productions economics? factors of cost of production?
In: Economics