Bethseda Mining
The details of the project are as follows:
1. The company has a four year contract encompassing 500,000 tons of coal every year at $82 for every ton
2. The production level in the four respective years include: 620,000 tons, 680,000 tons, 730,000 tons and 590,0000 tons
3. Fixed costs amounts to $4.1 million each year
4. The variable costs amount to $31 for every ton
5. Net working capital is 5 percent of the sales. This will be built up in the year before the sales
6. Spot sales of excess coal are $77 for every ton
7. Land: Purchase cost is $4 million. The land is held for ten years, after/tax sale currently $6.5 million
8. $2.7 million is necessitated for reclamation at year 5
9. Donation of land for $6 million deduction
10. Equipment cost of $95 million, 7 year MACRS depreciation
11. Equipment sale is at 60% of purchase price after completion of contract
12. Tax rate is 38 percent
13. Rate of return is 12 percent
Taking...
With respect to sales, every year the company will sell 500,000 tons under contract and the rest done on the spot market. Therefore the sales for every year will be as follows:
Year
Year 1
Year 2
Year 3
Year 4
Contract
500,000
500,000
500,000
500,000
Spot
120,000
180,000
230,000
90,000
Total
620,000
680,000
730,000
590,000
Year
Year 1
Year 2
Year 3
Year 4
Contract
43,000,000
43,000,000
43,000,000
43,000,000
Spot
9,240,000
13,860,000
17,710,000
6,930,000
Total
52,240,000
56,860,000
60,710,000
49,930,000
The existing…