Coal India Ltd

Value of Land (after tax) 5,500,000

Cost of Equipment 50,000,000

Depreciation 10,000,000
Net Value of Equipment 10,000,000
Sale Price of Equipment 20,000,000

Total Production (tons) 620,000 680,000 730,000

Projected Sales to Tata Power 500,000 500,000 500,000
Sale of Excess in Spot Market 120,000 180,000 230,000
Sale Price to Tata Power Ltd (per ton) 82
Sale Price in Spot Market (per ton) 76

Operating Expenses (per ton) 40

Net working capital investment 15,000,000

Tax Rate 35%

Required Rate of Return 12%

Cashflows Year 0 Year 1 Year 2 Year 3

Project Costs:
Cost of land -5,500,000
Equipment -50,000,000
Salvage Value (after tax)

Sales to Tata Power Ltd 41,000,000 41,000,000 41,000,000

Other Sales 9,120,000 13,680,000 17,480,000

Less Expenses:
Operating Expenses 24,800,000 27,200,000 29,200,000
Depreciation -10,000,000 -10,000,000 -10,000,000

Net Income before Taxes - 35,320,000 37,480,000 39,280,000

Less Tax 12,362,000 13,118,000 13,748,000

Net Income - 22,958,000 24,362,000 25,532,000

Add: Depreciation - -10,000,000 -10,000,000 -10,000,000
Less: Net Working Capital Requirement 15,000,000
FCFF -70,500,000 12,958,000 14,362,000 15,532,000
Discounted FCFF -70,500,000 11,569,643 11,449,298 11,055,371

NPV -10,842,272
PI 0.85
Payback Period 3 years and 251 days -27,648,000
250.68

Since NPV is negative and PI is less than 1, Coal India should not accept the new mine project.
 590,000
500,000
90,000

Year 4

13,000,000

41,000,000
6,840,000

23,600,000
-10,000,000

34,240,000
11,984,000

22,256,000
-10,000,000
-15,000,000
40,256,000
25,583,416