Bethseda Mining Case Study Essay

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Total Length: 405 words ( 1 double-spaced pages)

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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.

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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 into consideration that the net working capital is built up ahead of sales, it implies that the initial cash flow will be reliant party on this particular cash flow. 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

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