Reference no: EM133072239

1. Please provide a print- out of the excel workbook for each part of the problem below along with the answer to each part.

You are deciding on the financial viability of a potential coal project that will provide a stream of profits for the next 25 years. The start-up costs for this project is $336,500.00, and the marginal extraction cost per ton is $49. You may assume that the rate of return on the next best investment alternative is 6.8%. There is a total of 18,000 short tons that can be mined. In the analysis, assume that you will extract the exact same amount of coal each year over the life of the project (15 years).

a. Assuming that you are able to sell at a price of $76.05 per short ton

i. What is the total profit earned from this project?

ii. What is the net present value of profit over the lifetime of this project?

iii. What is the internal rate of return on this project?

b. Determine the minimum price per short ton that will allow the project to break-even.

c. Suppose that as the economy improves the interest rate increases. How will this affect the net present value of profit at the price found in part (b)? Explain the intuition behind your result.

d. (return to default specification from the question prompt): Suppose that the price of coal begins at $76.05 per short ton and increases at a rate of 2.5% per year.

i. What is the total profit earned from this project?

ii. What is the net present value of profit over the lifetime of this project?

iii. What is the internal rate of return on this project?

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