Bethesda Mining is a midsized coal mining company with 20 mines located…
BETHESDA MINING COMPANY Bethesda Mining is a midsized coal mining gang after a while 20 mines located in Ohio, Pennsylvania, West Virginia, and Kentucky. The gang operates thick mines as courteous as despoil mines. Most of the coal mined is sold underneathneath retrench, after a while increase evolution sold on the defect dispense. The coal mining activity, specially high-sulfur coal operations such as Bethesda, has been hard-hit by environmental regulations. Recently, nevertheless, a league of increased insist for coal and new contamination decrease technologies has led to an improved dispense insist for high-sulfur coal. Bethesda has proper been approached by Mid-Ohio Electric Gang after a while a supplicate to yield coal for its electric generators for the instant indelicate years. Bethesda Mining does not enjoy sufficient increase ability at its exist-ing mines to pledge the retrench. The gang is because aperture a despoil mine in Ohio on 5,000 acres of plant forfeitured 10 years ago for $6 favorite Based on a new-fangled appraisal, the gang feels it could accept $7 favorite on an aftertax premise if it sold the plant today. Despoil mining is a course where the layers of topsoil aggravatehead a coal say are separated and the unguarded coal is separated. Some era ago, the gang would simply separeprimand the coal and permission the plant in an unusable plight. Changes in mining regulations now vigor a gang to recal the plant; that is, when the mining is completed, the plant must be reinvigorated to close its former plight. The plant can then be used for other purposes. Because it is currently unreserved at liberal ability, Bethesda procure deficiency i) ifilooeforfeiture appended needful equipment, which procure absorb $85 favorite The equip-be depreciated on a seven-year MACRS register. The retrench runs for barely r.e L?' Years. At that era the coal from the aspect procure be completely mined. The gang .that the equipment can be sold for 60 percent of its judicious forfeiture estimate in indelicate Y_ s .- However, Bethesda plans to unconcealed another despoil mine at that era and-procure use the equipment at the new mine.
The retrench calls for the introduction of 500,000 tons of coal per year at a estimate of $y; pe ton. Bethesda Mining feels that coal evolution procure be 620,000 tons, 680,000 101, 730,000 tons, and 590,000 tons, respectively, aggravate the instant indelicate years. The increase produe tion procure be sold in the defect dispense at an mediocre of $90 per ton. Variable absorbs amoii to $31 per ton, and agricultural absorbs are $4,300,000 per year. The mine procure exact a net Wor ing important boarding of 5 percent of sales. The NWC procure be built up in the year anterior the sales. Bethesda procure be imperative for recaling the plant at exit of the mining. T procure befall in year 5. The gang uses an beyond gang for reclamation of all gang's despoil mines. It is estimated the absorb of reclamation procure be $2.8 favorite. After plant is recaled, the gang plans to donate the plant to the say for use as a common and pastime area. This procure befall in year 6 and consequence in a beneficent cost deduc of $7.5 favorite. Bethesda faces a 38 percent tax reprimand and has a 12 percent exactd ret on new despoil mine devices. Assume that a waste in any year procure consequence in a tax confidence. You enjoy been approached by the chairman of the gang after a while a supplicate to an the device. Calculate the payback time, profitability index, mediocre accounting ret net exhibit estimate, interior reprimand of restore, and mitigated interior reprimand of restore for the despoil mine. Should Bethesda Mining admit the retrench and unconcealed the mine?