oug Washington, the owner of Coyote Printing, is evaluating a printing company in Texas. Stan College, the company's CFO, has just finished his analysis of company. He has estimated that the printing company would be productive for eight years, during which the market would be completely diminished. Stan has taken an estimate of the balance statement and forecast to Hattie May, the company's financial officer. Hattie has been asked by Doug to perform an analysis of the printing company and present her recommendation on whether the company should open the take over the printing company. Hattie May has used the estimates provided by Stan to determine the revenues that could be expected from the printing company. She has also projected the expense of taking over the printing company and the annual operating expenses. If the company takes over the printing company, it will cost $700 million today, and it will have a cash outflow of $75 million nine years from today in costs associated with closing the printing company. The expected cash flows each year from the mine are shown in the table below. Coyote Printing has a 10 percent required return on all of its gold mines. Year / Cash Flow
Doug Washington, the owner of Coyote Printing, is evaluating a printing company in Texas. Stan College, the company's CFO, has just finished his analysis of company. He has estimated that the printing company would be productive for eight years, during which the market would be completely diminished. Stan has taken an estimate of the balance statement and
Year / Cash Flow
0 / -$750,000,000
1 / $85,000,000
2 / $125,000,000
3 / $167,000,000
4 / $225,000,000
5 / $215,000,000
6 / $158,000,000
7 / $109,000,000
8 / $86,500,000
9 / -$79,000,000
a) Calculate the payback period,
b) Based on your analysis, should the company open the mine?
c) Most spreadsheets do not have a built-in formula to calculate the payback period. Write a VBA script that calculates the payback period for a project.
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