Managerial Decision Modeling

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1. StillWater Mining Company
a)
Interest Rate12%
Price per ounce$ 1,500.00
Cost per ounce$ 400.00
Total ounces a year10,000
Profit per ounce$ 1,100
Revenue per year$ 15,000,000.00
Cost per year$ 4,000,000.00
Profit per year$ 11,000,000.00

Every year for the next 10 years, the firm earns a profit of $11 Million. The cash flow (in $ Million) is shown below: YearTT+1T+2T+3T+4T+5T+6T+7T+8T+9
Profit11111111111111111111

Using NPV formula, we find NPV=$62,152,453.31

b) The NPVs (in $ Million) for variations in profit per ounce and interest rate are shown in table below:
8%9%10%11%12%13%14%15%
$50033.5532.0930.7229.4528.2527.1326.0825.09
$60040.2638.5136.8635.3433.932.5631.330.11
$70046.9744.9243.0141.2239.5537.9836.5135.13
$80053.6851.3449.1647.1145.243.4141.7340.15
$90060.3957.7655.35350.8548.8446.9545.17
$100067.164.1861.4558.8956.554.2652.1650.19
$110073.8170.5967.5964.7862.1559.6957.3855.21
$120080.5277.0173.7470.6767.865.1262.5960.23
$130087.2383.4379.8876.5673.4570.5467.8165.24
$140093.9489.8586.0282.4579.175.9773.0370.26
$1500100.6596.2792.1788.3484.7581.3978.2475.28

2. Savings for Future Expenditures

Interest Rate8%
Current College Tuition$ 40,000
Annual growth rate of tuition5%
Time of first college payment (yrs)6
Time of last college payment (yrs)9
Annual growth rate of investment6%
Time of last investment (yrs)9

a) The cash flow of tuition (in dollars) is shown below:
Year0123456789
Tuition------53,60456,28459,09862,053
To cover the tuition expenses she has to invest something today which if it grows at 6% every year for 9 years, provides the same NPV as the NPV of the tuition payment. Thus the present value at 0 is the initial investment. Using NPV and cash flow formula, where C_i is cash flow of tuition, and A initial investment: NPV(8%,9)=∑_(i=0)^9▒〖...
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