Georgia State University Bullock Gold Mining Corporate Finance Homework

Corporate Finance

Georgia State University

### Question Description

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answer. Question A has 2 parts and Question B has 3 parts. (use excel to complete the assignment but submit in a word document)

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Round all answers to 2 decimals and all intermediate work to 4 decimals.

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1

Corporate Finance

Course Name

Professor Name

Date

CORPORATE FINANCE

2

QUESTION A
year

cash flow

Cumulative Cash inflow

-

(600,000,000.00)

600,000,000.00

1.00

75,000,000.00

75,000,000.00

2.00

120,000,000.00

195,000,000.00

3.00

160,000,000.00

355,000,000.00

4.00

130,000,000.00

485,000,000.00

5.00

240,000,000.00

6.00

180,000,000.00

7.00

210,000,000.00

8.00

90,000,000.00

9.00

(95,000,000.00)

We see that the initial cost is recovered sometime between Year 5 and 6.

Remaining cost

Thus, the payback period is

1
1
5
0
0
0
0
0
0.
0
0
4.
4
8

Internal Rate of Return (IRR)
The IRR is the rate of return when the present value of all the cash flows equals to zero.
8
From execel formula, IRR =
%
Net Present Value (NPV)
NPV is the sum of present values of all the cash flows discounted at the required return of the investor.
(\$
3,
5
4

CORPORATE FINANCE

3
7,
6
4
4.
8
4)

The company should NOT open the mine because
1. It's IRR = 8% < Required return =12%
2.It has a Negative NPV
QUESTION B

S&s Air, Inc.
2012 Income Statement
Sales

\$
30,499,420
22224580

Cost of goods sold
Other expenses

3867500

Depreciation

1366680

EBIT

\$
3,040,660

Interest
Taxable income

478240
\$
2,562,420

Taxes (40%)

1024968

Net income

\$
1,537,452
\$
560,000

Dividends

977452
S&s Air, Inc.
2012 Income Statement

Assets
Current assets
Cash
Accounts receivable
Inventory
Total current assets

\$441000
508400
1237120
\$2186520

Liabilities and Equity
Current liabilities
Accounts payable
\$689000
Notes payable
2230000
Total Current liabilities
\$2919000
Long-term debt
\$5320000

CORPORATE FINANCE
Fixed assets
Net plant and equipment

Total assets

4

\$16122400

\$18308920

Shareholder equity
Common stock
Retained earnings
Total equity
Total Liabilities and Equity

\$350000
9719920
\$10069920
\$18308920

Part 1
Internal Growth Rate=( ROA*retention Ratio)/(1-( ROA*retention Ratio)
Return On Assets(ROA)=Net Income/Total Assets

8%

Retention Ratio= 1-(Dividend Payout/Net Income)

64%

Internal Growth Rate

6%

Sustainable-growth rate = ROE*(1 - dividend-payout ratio)
ROE=Return On Equity= Net Income/Total Equity

15%

Dividend-pay-out ratio

36%

Sustainable-growth rate

10%

Internal Growth rate is the optim...

markjunior209 (5539)
New York University
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