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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)
Dan Dority
(Geologist)
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%
Payback Period
NPV (Net Present Value)
IRR & MIRR
Financial Decision
Bonus Question (VBA Script)
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
PV =
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
IRR
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
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
MIRR > R
16.21 %
NPV vs IRR
NPV or IRR ??
NPV vs IRR
Mutually Exclusive Projects
NPV more
IRR less
NPV less
IRR more
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
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
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"
- $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
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