Financial Management: Bethesda Mining Company Case Study

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Added on 2019-09-18

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Bethesda Mining is a midsized coal mining company considering opening a strip mine in Ohio. The company has been approached by Mid-Ohio Electric Company with a request to supply coal for its electric generators for the next four years. Bethesda Mining does not have enough excess capacity at its existing mines to guarantee the contract. The company is considering opening a strip mine in Ohio on 5,000 acres of land purchased 10 years ago for $6 million. Calculate the payback period, profitability index, net present value, internal rate of return, and modified internal rate of return for the new strip mine. Do a sensitivity analysis based on change in fixed costs.

Financial Management: Bethesda Mining Company Case Study

Added on 2019-09-18

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Group Assignment#2Due date: Lecture 11 (November17th).(You are given three weeks to complete theassignment)Department of Economics andFinanceCB3410, FinancialManagementSemester A,2016/17, Dr. RyoonheeKimRead the following case carefully and answer the questions in the bottom.Showall the works you need to do to get final answer. Each step to obtain thefinalanswershouldbeshownorexplained(e.g.whyyouchoosetodoinsuchaway).An answer without explanation will get 0 point. (Even if you submit an excelfile,You should submit one report per group and put all the names of yourgroupmembers on the report. The submission can be in a hard copy or a soft copyofyour answer. You should bring a hard copy to me in class or send a soft copybyemail to TA, Gobin Rana (rgobin@cityu.edu.hk) on or before the due datestatedabove. No late submission will beaccepted.Mini Case Study: Bethesda MiningCompanyBethesda Mining is a midsized coal mining company with 20 mines locatedin Ohio, Pennsylvania, West Virginia, and Kentucky. The company operatesdeepmines as well as strip mines. Most of the coal mined is sold under contract,withexcess production sold on thespotmarket.The coal mining industry, especially high-sulfur coal operations suchasBethesda, has been hard-hit by environmental regulations. Recently, however,a combination of increased demand for coal and new pollutionreductiontechnologies has led to an improved market demand for high-sulfurcoal.BethesdahasjustbeenapproachedbyMid-OhioElectricCompanywitharequestto supply coal for its electric generators for the next four years. BethesdaMiningdoes not have enough excess capacity at its existing mines to guaranteethecontract. The company is considering opening a strip mine in Ohio on5,000acres of land purchased 10 years ago for $6 million. Based on a recentappraisal,the company feels it could receive $7 million on an aftertax basis if it soldthelandtoday.Strip mining is a process where the layers of topsoil above a coal veinareremoved and the exposed coal is removed. Some time ago, the companywouldsimply remove the coal and leave the land in an unusable condition. Changesin mining regulations now force a

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