Seth Bullock plans to open a new gold mine in South Dakota. The CFO, Alma Garrett, estimates the mine will generate cash flows for 8 years based on an initial investment of $400 million. She calculates the projected cash flows and net present value to help the owners make a rational financial decision about the project.

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Bullock Gold Mining
Corporate Finance Case Study
Uun Ainurrofiq 1111200141
Yoong Khai Hung 1111200139
Khatereh Azarnoor 1101600315
Aliakbar Bahrpeyma1091200261
Jevgenijs Lesevs 1111200131
Shahin Firouztash 1111200070

2. Case Overview
Seth Bullock
(Owner)
Dan Dority
(Geologist)
Alma Garrett
(CFO)
Hi fellas..
we plan to work on a new Gold Mine
in South Dakota !!
Not Bad.. based on my estimation,
that site would be productive for
eight year sir..
Alright gentleman, Chill out..
I’ll do the financial analysis to help
you making a rational decision

3. Alma’s Cash flow Estimation
Year Cash Flow
0 $ (400,000,000.00)
1 $ 85,000,000.00
2 $ 90,000,000.00
3 $ 140,000,000.00
4 $ 180,000,000.00
5 $ 195,000,000.00
6 $ 130,000,000.00
7 $ 95,000,000.00
8 $ 60,000,000.00
9 $ (95,000,000.00)
$(500,000,000.00)
$(400,000,000.00)
$(300,000,000.00)
$(200,000,000.00)
$(100,000,000.00)
$-
$100,000,000.00
$200,000,000.00
$300,000,000.00
0 1 2 3 4 5 6 7 8 9
Initial Investment
Reclamation Cost
Cash Inflow /
Revenue Stream
Our company
required rate of
return is 12%

4. Bonus Question (VBA Script)
Questions of The Case
Payback Period
IRR & MIRR
Financial Decision
NPV (Net Present Value)

5. Payback Period (Spreadsheet)
*Formula Payback Period in C15 =-C7/(B8)+3
*Formula Disc Payback Period in E15 =-E8/(D9)+4

6. Discounted Payback Period
Year Initial Investment Discounted Cashflow
0 -$400,000,000
1 $85,000,000 / (1.12)1 = $75,892,857
2 $90,000,000 / (1.12)2 = $71,747,449
3 $140,000,000 / (1.12)3 = $99,649,235
4 $180,000,000 / (1.12)4 = $114,393,254
5 $195,000,000 / (1.12)5 = $110,648,237
6 $130,000,000 / (1.12)6 = $65,862,046
7 $95,000,000 / (1.12)7 = $42,973,175
8 $60,000,000 / (1.12)8 = $24,232,994
9 -$95,000,000 / (1.12)9 = -$34,257,952

7. The Concept of NPV

8. NPV (Manual Calculation)
Year Cash Flow Calculation Present Value
0 $ (400,000,000.00) $ (400,000,000)
1 $ 85,000,000.00
85,000,000 / (1.12)1
$ 75,892,857
2 $ 90,000,000.00
90,000,000 / (1.12)2
$ 71,747,449
3 $ 140,000,000.00
140,000,000 / (1.12)3
$ 99,649,235
4 $ 180,000,000.00
180,000,000 / (1.12)4
$ 114,393,254
5 $ 195,000,000.00
195,000,000 / (1.12)5
$ 110,648,237
6 $ 130,000,000.00
130,000,000 / (1.12)6
$ 65,862,046
7 $ 95,000,000.00
95,000,000 / (1.12)7
$ 42,973,175
8 $ 60,000,000.00
60,000,000 / (1.12)8
$ 24,232,994
9 $ (95,000,000.00)
-95,000,000 / (1.12)9
$ (34,257,952)
Net Present Value >> $ 171,141,294

9. NPV
NPV formula in Ms Excel = NPV (rate, values)
NPV formula in after correction = NPV (rate, values) + initial cost

10. IRR
IRR formula in Ms Excel = IRR (values)
MIRR formula in Ms Excel = MIRR (values, finance rate, reinvest rate )

11. IRR
IRR = 24%
13,777,690/x = 171,141,294.31/13-x
x = 0.98

12. MIRR
Year cash flow future value factor at 15% terminal value $
1 85 000 000 (1.12)^8 210 465 870
2 90 000 000 (1.12)^7 198 961 327
3 140 000 000 (1.12)^6 276 335 176
4 180 000000 (1.12)^5 317 221 503
5 195 000 000 (1.12)^4 306 836 275
6 130 000 000 (1.12)^3 182 640 640
7 95 000 000 (1.12)^2 119 168 000
8 60 000 000 (1.12)^1 67 200 000
1678828791
DCF0= 400 000 000/(1.12)^0 = 400 000 000
DCF9= 95 000 000/(1.12)^9 = 34 257 952.37
434 257 952.37

13. MIRR
MIRR = 16.21 %
MIRR = 16.21 %
In PV table 0.2587 ► 16.21%
other method

14. Financial Decision
Decision
INVEST !!!
MIRR > R
16.21 %
NPV (+)
$ 171,141,294.31
1.The Payback Period is within the investment lifespan: Good
2.The Net Present Value has a Positive Value: Good
3.The MIRR is greater than the current cost of capital Good
Discounted Payback Period 4.35 ( < 8 Years)

15. NPV vs IRR
NPV or IRR ??

16. NPV vs IRR
Mutually Exclusive Projects
NPV more
IRR less
NPV less
IRR more
How to decide ???

17. NPV vs IRR
Find value of “i”
Project A
-1000 000
+350 000/(1+i)^1
+400 000/(1+i)^2
+500 000/(1+i)^3
+650 000/(1+i)^4
+700 000/(1+i)^5
Project B
-800 000
+ 600 000/(1+i)^1
+400 000/(1+i)^2
+300 000/(1+i)^3
+200 000/(1+i)^4
+200 000/(1+i)^5
i = 29.165% crossover point
-100 000+ 350 000/(1+29.165)^1 + …
=170 981
NPV crossover point = 170 981

18. NPV & IRR
903,021
562,214
36% 42%
Crossover point
29.165%
170,981
NPV
Discount Rate
Mutually Exclusive Projects

19. Bonus Question
Seth Bullock
(Owner)
Most spreadsheets do not have
built-in formula to calculate the
payback period.
Write a VBA script that calculates
the payback period for a project !!

20. Bonus Question
Payback period = Amount invested ⁄ Expected annual cash inflow
*When the periodic cash inflows are unequal, “Net cash inflows”
have to be summed up until the amount invested in recovered.

21. VBA Script
Function PAYBACK(invest, finflow)
Dim x As Double, v As Double
Dim c As Integer, i As Integer
x = Abs(invest)
i = 1
c = finflow.Count
Do
x = x - v
v = finflow.Cells(i).Value
If x = v Then
PAYBACK = i
Exit Function
ElseIf x < v Then
P = i - 1
Z = x / v
PAYBACK = P + Z
Exit Function
End If
i = i + 1
Loop Until i > c
PAYBACK = "no payback"
End Function
invest and finflow get the values of Investment and Cash
inflow from Excel
Dim allocates space in the memory for created variable
Abs() function gets the absolute value of invest
variable i is to count the number of payback years
finflow.Count counts the number Cash inflows
Enter a loop that calculates the payback period
finflow.Cell get the amount of cash inflow in each cell in
the excel file, the value will be assign to variable v

22. VBA Script (cont’d)
Function PAYBACK(invest, finflow)
Dim x As Double, v As Double
Dim c As Integer, i As Integer
x = Abs(invest)
i = 1
c = finflow.Count
Do
x = x - v
v = finflow.Cells(i).Value
If x = v Then
PAYBACK = i
Exit Function
ElseIf x < v Then
P = i - 1
Z = x / v
PAYBACK = P + Z
Exit Function
End If
i = i + 1
Loop Until i > c
PAYBACK = "no payback"
End Function
if the invested value is equal to cash inflow value
then i = 1 will be returned as the number of payback years
if the invested amount is less than the cash inflows, then Formula 1
will be performed, this and the result will be returned as the
number payback years
this loop makes sure that all the Cash inflows have been considered
and summed up in the excel file.
If the amount invested is more than the Cash inflows (x > v) then
there will be no payback and the message will be returned to the
user

23. Company Cash Flow
Year Cash Flow
0 - $400,000,000
1 85,000,000
2 90,000,000
3 140,000,000
4 180,000,000
5 195,000,000
6 130,000,000
7 95,000,000
8 60,000,000
9 -95,000,000
The total investment and cash flows are as
follow:

24. VBA Running in Ms Excel

25. Seth Bullock
(Owner)
Dan Dority
(Geologist)
Alma Garrett
(CFO)
Thank You

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Back-Up Slides

27. Payback Period
Year Cash outflow Cash Inflow Payback
0 -$400,000,000 -$400,000,000
1 $85,000,000 -$315,000,000
2 $90,000,000 -$225,000,000
3 $140,000,000 -$85,000,000
4 $180,000,000
5 $195,000,000
6 $130,000,000
7 $95,000,000
8 $60,000,000
9 -$95,000,000
85,000,000 / 180,000,000 = 0.47
Payback period = 3.47 years

28. Discounted Payback Period
Year Discounted Cash outflow Discounted Cash Inflow Payback
0 -$400,000,000 -$400,000,000
1 $75,892,857 -$324,107,143
2 $71,747,449 -$252,359,694
3 $99,649,235 -$152,710,459
4 $114,393,254 -$38,317,205
5 $110,648,237
6 $65,862,046
7 $42,973,175
8 $24,232,994
9 -$34,257,952
38,317,205 / 110,648,237 = 0.35
Payback period = 4.35 years