Reference no: EM132917668

You work at a facility that consists of a copper mine and concentrator, and that sells concentrate to a buyer that is responsible for all costs from the point the concentrate has been treated in a smelter to which your company delivers concentrate. You have been asked to help estimate the after-tax cash flow generated by your facility.

You have been provided with the following information about one period of operation:

• Net smelter return (NSR) is $80 million.
• On-site cash operating costs total $36 million; you are told that income tax rules in your jurisdiction include a narrower definition of operating costs that excludes some items.
• The concentrate produced by your facility contains a level of a contaminant that resulted in penalties of $4 million for the period.
• Mining royalty payable to the province for the period is $7 million.
• Allowable deductions for the calculation of income tax include $5 million for standard items, plus an additional northern mine allowance introduced temporarily by the province and applicable to facilities including that of your company.
• You have not been given a figure for income tax, which is levied by both federal and provincial governments, but a note from the finance team contact for your facility indicates: that the total (federal and provincial) tax burden is approximately 33% of NSR less operating costs, less allowable deductions, less mining tax.

Problem (a) Are any of the pieces of information provided to you irrelevant to the calculation you have been asked to make?

Problem (b) Do you have all information you need to estimate the after-tax cash flow? If not, what information are you missing?