Bethesda Mining Company 3l374e

Project Details: 4 yr contract for 500,000 tons of coal per year @ $82 per ton. 4 yr production in tons: 620,000, 680,000, 730,000, 590,000 Fixed cost: $4.1 million per year Variable cost: $31 per ton NWC: 5 percent of sales. The NWC will be built up in the year prior to the sales Spot Sales of excess coal- $76 per ton Land: Purchase cost $5 million, held ten years, after-tax sale (currently) $5.5 million $2.7 million required reclamation at yr 5 Donation of land for $6 million deduction Equipment cost of $85 million, 7 year MACRS depreciation Equipment sale 60% of purchase price after completion of contract Tax rate: 38% Rate of return 12%

Total Unit Sales Projected Revenue

620000 Year 0

Contract Price per Unit Contract Unit Sales Total Contract Sales Spot Price per Unit Spot Unit Sales Total Spot Sales Total Sales Operating Cash Flows Unit Sales Variable Cost ($31/ton) Fixed Cost Reclamation & Land donation Depreciation Earnings before Taxes (EBT) Taxes Net income Depreciation Total Operating Cash Flows

Year 1 $82.00 500,000 41,000,000.00 $76.00 120,000 9,120,000.00 $50,120,000.00

620000 ($19,220,000.00) ($4,100,000.00) $0.00 ($12,146,500.00) $14,653,500.00 ($5,568,330.00) $9,085,170.00 $12,146,500.00 $21,231,670.00

Investment Cash Flows Equipment Land (opportunity cost) Net Working Capital Beginning NWC Ending NWC Net Working Capital cash flow Total Investment Cash Flows

($85,000,000.00) ($5,500,000.00)

$0.00

$2,506,000.00 ($2,506,000.00) ($93,006,000.00)

$2,506,000.00 $2,734,000.00 ($228,000.00) ($228,000.00)

($93,006,000.00) ($93,006,000.00)

$21,231,670.00 ($228,000.00) $21,003,670.00

Projected Total Cash Flow Operating cash flow Investment Cash Flows Total project cash flow Assumptions Required Return Tax Rate Net Present Value Internal Rate of Return

12.00% 38.00% $5,718,491.29 Do not accept project as the NPV is 14.39%

Profitability Index = =

PV of cash flows subsequent to initial investment Initial investment Profitability Index =

-1.06

680000

730000

590000

Year 2 $82.00 500,000 41,000,000.00 $76.00 180,000 13,680,000.00 $54,680,000.00

Year 3 $82.00 500,000 41,000,000.00 $76.00 230,000 17,480,000.00 $58,480,000.00

Year 4 $82.00 500,000 41,000,000.00 $76.00 90,000 6,840,000.00 $47,840,000.00

680000 ($21,080,000.00) ($4,100,000.00) $0.00 ($20,816,500.00) $8,683,500.00 ($3,299,730.00) $5,383,770.00 $20,816,500.00 $26,200,270.00

730000 ($22,630,000.00) ($4,100,000.00) $0.00 ($14,866,500.00) $16,883,500.00 ($6,415,730.00) $10,467,770.00 $14,866,500.00 $25,334,270.00

590000 ($18,290,000.00) ($4,100,000.00) $0.00 ($10,616,500.00) $14,833,500.00 ($5,636,730.00) $9,196,770.00 $10,616,500.00 $19,813,270.00

$0.00

$0.00

$41,710,520.00

$2,734,000.00 $2,924,000.00 ($190,000.00) ($190,000.00)

$2,924,000.00 $2,392,000.00 $532,000.00 $532,000.00

$2,392,000.00 $0.00 $2,392,000.00 $44,102,520.00

$26,200,270.00 ($190,000.00) $26,010,270.00

$25,334,270.00 $532,000.00 $25,866,270.00

$19,813,270.00 $44,102,520.00 $63,915,790.00

Reclamation

pt project as the NPV is less than the sale price of the land.

Year 5

($2,700,000.00) ($2,700,000.00) $1,026,000.00 ($1,674,000.00) $0.00 ($1,674,000.00)

($1,674,000.00) ($1,674,000.00)

Sale of land Year 6 MACRS Depreciation Schedule Year 3 year 1 33.33% 2 44.45% 3 14.81% 4 7.41% Equipment book value $85,000,000.00 ($58,446,000.00) $26,554,000.00 ($6,000,000.00) ($6,000,000.00) $2,280,000.00 ($3,720,000.00) $0.00 ($3,720,000.00)

$2,280,000.00 $2,280,000.00

$51,000,000.00 $24,446,000.00 $9,289,480.00 $41,710,520.00

5 year

7 year 20.00% 32.00% 19.20% 11.52%

purchase accum dep book sale price taxable gain tax on gain cf from sale

10 year 14.29% 10.00% 24.49% 18.00% 17.49% 14.40% 12.49% 11.52%