Essay on Mini Case Study-Bethesda Mining

1321 Words Jul 13th, 2011 6 Pages
Mini-Case Study: Bethesda Mining Company Week 4 Application 2
Jo-Ann Savoie
Walden University
Finance: Fiscal Leadership in a Global Environment
DDBA-8140-2
Dr. Guerman Kornilov
March 24, 2011 The following Mini-Case on Bethesda Mining Company was taken from the text corporate finance (2010, P. 203-204). In order to determine if Bethesda Mine should open, a thorough analysis of the payback period, profitability index, average accounting return, net present value, internal rate of return, and the modified internal rate of return have been conducted.
Table 1. Cash flow on Investment
Tax rate= 38% Year 0 Cash flow (outflow) on investment Opportunity cost of using
…show more content…
The profitability index = PV of cash inflows/investment = $115,067,705/$94,915,000 = 1.21%
In order to determine the IRR and MIRR Excel IRR and MIRR functions were used. A result of 20% was calculated for the IRR and 15.65% was calculated for the MIRR.
Table 10. IRR calculations
Cash flow

($94,915,000)
$25,909,270
$31,443,670
$31,866,670
$67,254,990
$0
$2,850,000
20.00%

Table 11 MIRR calculations
Cash flow

($94,915,000)
$25,909,270
$31,443,670
$31,866,670
$67,254,990
$0
$2,850,000
15.65%

2. Should the project be undertaken? After all calculations have been completed I would support the project. The NPV is positive, and the IRR and MIRR are higher than the required rate of return of 12%. The payback period is less than four years and the profitability index is higher than 1.

References
Ross, S. A., Westerfield, R. W., & Jaffe, J. (2008). Corporate finance (8th ed.). New York: McGraw-Hill Irwin.

Small Business Managementâ„¢ (2011). Federal depreciation rates. Retrieved from

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