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Bullock Gold Mining


Uun Ainurrofiq 1111200141

Corporate Finance
Case
Study
Yoong
Khai
Hung
1111200139
Khatereh Azarnoor
1101600315
Aliakbar
Bahrpeyma1091200261
Jevgenijs Lesevs 1111200131

Case Overview
Hi fellas..
we plan to work on a new Gold Mine
in South Dakota !!
Seth Bullock
(Owner)

Not Bad.. based on my estimation,


that site would be productive for
eight year sir..

Alright gentleman, Chill out..


Ill do the financial analysis to help
you making a rational decision
Alma Garrett
(CFO)

Dan Dority
(Geologist)

Almas Cash flow Estimation


Year
0
1
2
3
4
5
6
7
8
9

Cash Flow
$
(400,000,000.00)
$
85,000,000.00
$
90,000,000.00
$
140,000,000.00
$
180,000,000.00
$
195,000,000.00
$
130,000,000.00
$
95,000,000.00
$
60,000,000.00
$
(95,000,000.00)

Initial Investment

$300,000,000.00
$200,000,000.00
$100,000,000.00
$-

Cash Inflow /
Revenue Stream

$(100,000,000.00)

$(200,000,000.00)
$(300,000,000.00)
$(400,000,000.00)
$(500,000,000.00)

Reclamation Cost

Our company
required rate of
return is 12%

Questions of The Case

Payback Period
NPV (Net Present Value)
IRR & MIRR
Financial Decision
Bonus Question (VBA Script)

Payback Period (Spreadsheet)

*Formula Payback Period in C15 =-C7/(B8)+3


*Formula Disc Payback Period in E15 =-E8/(D9)+4

Discounted Payback Period


Year
Initial Investment
0
-$400,000,000
1
= $75,892,857
2
= $71,747,449
3
= $99,649,235
4
= $114,393,254
5
= $110,648,237
6
= $65,862,046
7
= $42,973,175
8

Discounted Cashflow
$85,000,000 / (1.12) 1
$90,000,000 / (1.12) 2
$140,000,000 / (1.12) 3
$180,000,000 / (1.12) 4
$195,000,000 / (1.12) 5
$130,000,000 / (1.12) 6
$95,000,000 / (1.12) 7
$60,000,000 / (1.12) 8

The Concept of NPV


Net Present Value of the project compares how much the project cost with
Thehow
much it brings in terms of todays dollar value. We use a procedure
called the discounted cash flow (DCF) valuation. The NPV of the project can be
calculated by the following formula:

NPV = PV0 + PV1 + PV2 + PV3 + PVn

PV =

t - the time of the cash flow


i - the discount rate (the rate of return)
C - the net cash flow (the amount of cash, inflow minus outflow)

NPV (Manual Calculation)


Year
0
1
2
3
4
5
6
7
8
9

Cash Flow
$
(400,000,000.00)
$
85,000,000.00
$
90,000,000.00
$
140,000,000.00
$
180,000,000.00
$
195,000,000.00
$
130,000,000.00
$
95,000,000.00
$
60,000,000.00
$
(95,000,000.00)

Calculation

85,000,000
(1.12)1
90,000,000
(1.12)2
140,000,000
(1.12)3
180,000,000
(1.12)4
195,000,000
(1.12)5
130,000,000
(1.12)6
95,000,000
(1.12)7
60,000,000
(1.12)8
-95,000,000
(1.12)9

/
/
/
/
/
/
/
/
/

Net Present
Value >>

Present Value
$
(400,000,000)
$
75,892,857
$
71,747,449
$
99,649,235
$
114,393,254
$
110,648,237
$
65,862,046
$
42,973,175
$
24,232,994
$
(34,257,952)
$
171,141,294

NPV

NPV formula in Ms Excel = NPV (rate, values)


NPV formula in after correction = NPV (rate, values) + initial cost

IRR

IRR formula in Ms Excel = IRR (values)


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

IRR

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

MIRR
Year
cash flow
terminal value $
1
85 000 000
210 465 870
2
90 000 000
198 961 327
3
140 000 000
276 335 176
4
180 000000
317 221 503
5
195 000 000
306 836 275
6
130 000 000
182 640 640
7
95 000 000
119 168 000
8
60 000 000
67 200 000

future value factor at 15%

1678828791

(1.12)^8
(1.12)^7
(1.12)^6
(1.12)^5
(1.12)^4
(1.12)^3
(1.12)^2
(1.12)^1

MIRR
MIRR = = 0.2587
In PV table 0.2587 16.21%

MIRR = 16.21 %
other method

MIRR = - 1
MIRR = 16.21 %

Financial Decision
Discounted Payback Period 4.35 ( <
8 Years)
NPV (+)

Decision
INVEST !!!

$ 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

MIRR > R

16.21 %

NPV vs IRR

NPV or IRR ??

NPV vs IRR
Mutually Exclusive Projects

NPV more
IRR less

NPV less
IRR more

How to decide ???

NPV vs IRR
Find value of i
Project A

Project B

-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

-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

NPV & IRR


NPV

Mutually Exclusive Projects

903,021

Pr
oje
ct

562,214

Pro
ject

Crossover point

170,981
29.165% 36%

42%
Discount Rate

Bonus Question
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 !!
Seth Bullock
(Owner)

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.

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"

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

VBA Script (contd)


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"

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

Company Cash Flow


The total investment and cash flows are as
follow:
Year
Cash Flow
0

- $400,000,000

85,000,000

90,000,000

140,000,000

180,000,000

195,000,000

130,000,000

95,000,000

60,000,000

-95,000,000

VBA Running in Ms Excel

Thank You

Alma Garrett
(CFO)

Seth Bullock
(Owner)

Dan Dority
(Geologist)

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Back-Up Slides

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

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

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