# Managerial Decision Modeling

Topics: Costs, Variable cost, Cost Pages: 3 (821 words) Published: April 15, 2013
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▒〖...