Mining Company Finance Assingment Help With Solution
A mining company has been in operation producing and selling base metal concentrates for the last threeyears. The life of its operating mine, Project C, was originally estimated to be 10 years.
During the current year (its fourth year of production),the company:
1. Sells for $75 millioncash all the concentrate in its inventory stockpiles on hand at the end of the third year plus all of its fourth year production.
2. Purchases for cash threehaul trucks on 1 July with a useful life of five years for $3.5 million each to augment its Project C fleet.The trucks are expected to be worthless at the end of their lives.
3. Buys a new operating project, Project D, on September 30 for $75 million paying $25 million cash and the balance with a second loan of $50 million repayable at the end of five years. The project is producing steadily and has a residual mine life of nine years. The value of the tangible assets of Project D is $35 million.
4. Pays a dividend of $5 million on 10 November.
5. Repays $8 million of the principal of its first loan on 31 December. Similar annual principal repayments will be due each year until the full principal amount is repaid.
6. Spends $3.4 million in February in further delineating the mineral resources of exploration Project B.
7. Makes a placement of 12 million shares at $0.70 each on 30April.
8. Incurs cash expensesof $33million on mine production for the year.
9. Determineson 30 June that the probability is extremely low that exploration Project A will eventually result in a viable mining operation and that this project should be relinquished.
10. Pays interest in arrears in December and June at 5%pa on both loans.
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Aside from these transactions, assume that the company is on a “steady state”, i.e. that the opening and closing balances for all the other items remain the same and that assets depreciate on a straight line basis. Ignore income tax expense.
A) Usingthe template provided, prepare a worksheet to record transactions in date order and construct the company’s Income Statement and Cash Flow Statement for its fourth year and the Balance Sheet at the end of that year. Please note that numbers should only be entered directly in the worksheet at the top of the template. All other tables (i.e. Balance Sheet, Income Statement, Cash Flow Statement and Statistics) should be completed using formulas. Apart from the previous year’s values in the balance sheet, all numbers provided for guidance in the template should be replaced with formulas.Doing the right thing with incorrect numbers will generally result in partial marks being awarded. However, if numbers only are entered and not formulas, the marker of the assignment cannot follow your logic, and therefore, cannot award credit for doing the right thing with wrong numbers.
B) Calculate and comment on the company’s profitability for the fourth year using Return of Assets (ROA) and Return on Equity(ROE) (use only the average assets and average equity figures as your denominators in the fourth year’s calculations).The company has a before-tax required rate of return on equity of 11%.The sector average ROA is 8%.
C) Calculate and comment on the company’s liquidity and solvency positions for the third and fourth years and the reasons for any year-to-year changes. NOTE: in calculating the debt to equity and gearing ratios, please use interest bearing liabilities.
In B and C above, the marking emphasis will be on your interpretations of your calculations.Please include your responses to Parts B & C in your Excel workbook, NOT as a separate file.
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