# The totals of the budget do not show the time value

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The totals of the budget do not show the time value of the money, They include contingency allowance of 15%. Both 2005 and 2006 cost estimates are from 01/01/06 onwards. The year-year vitality of the estimates is of great concern in the reliability of the projections.
MEMORANDUM 5 The budget of 2006 involves items such as employee housing buy-back costs and severance that cannot be transferred in the event when Can-Do buys the South Face Mine. In addition, Can-Do would be able to make other costs internal and this would cost the amounts budgeted by Mountain Mining Canada Ltd. The budget above was adjusted so as to include these items into account. Analysis: Methods & Assumptions Table 2 below illustrates the projections of the value of South FACE Mine to Can-Do in different scenarios. Cash flows given by the mountain Mining Canada Ltd. while the costs savings estimated by Can-Do analysts do not consider inflation, thus inflation was at rates shown in table 2. South Face mine’s valuation is calculated as the difference between the inflated cash flows and cost savings and the discounted estimates. Table 2: Sensitivity Tests (South Face Mine) Scenari o Case Assumptions Valu e at 1/1/06 (000) Cost Savings Duration Inflatio n Rate Discoun t Rate Cost Savings Add'l Costs Net Value Short Term Long Term Base Can-Do MMCL MMCL 2.49% 6.00% \$21,82 0 \$6,65 6 \$ 15,164 2 Can-Do MMCL + 1 MMCL 2.49% 6.00% \$21,82 0 \$13,08 0 \$ 8,739 3 Can-Do MMCL + 2 MMCL 2.49% 6.00% \$21,82 0 \$19,29 2 \$ 2,527 4 Can-Do MMCL MMCL + 5 2.49% 6.00% \$21,82 0 \$7,06 0 \$ 14,760 5 Can-Do MMCL MMCL + 10 2.49% 6.00% \$21,82 0 \$7,40 1 \$ 14,419 6 Can-Do MMCL MMCL 3.00% 6.00% \$22,82 3 \$6,85 9 \$ 15,964 7 Can-Do MMCL + 1 MMCL 3.00% 6.00% \$22,82 3 \$13,37 3 \$ 9,450 8 Can-Do MMCL + 2 MMCL 3.00% 6.00% \$22,82 3 \$19,70 3 \$ 3,120 9 Can-Do MMCL MMCL + 5 3.00% 6.00% \$22,82 3 \$7,31 3 \$ 15,510
MEMORANDUM 6 10 Can-Do MMCL MMCL + 10 3.00% 6.00% \$22,82 3 \$7,70 6 \$ 15,117 11 Can-Do MMCL MMCL 4.00% 6.00% \$24,94 7 \$7,27 9 \$ 17,667 12 Can-Do MMCL MMCL 3.00% 5.00% \$24,90 4 \$7,27 1 \$ 17,633 13 Can-Do MMCL MMCL 3.00% 7.00% \$20,99 4 \$6,48 6 \$ 14,507 14 90% Can- Do MMCL MMCL 3.00% 6.00% \$20,54 1 \$6,85 9 \$ 13,682 Interpretations of scenarios indicated in table 2 above. In scenarios 2, 3, 4 and 5 indicates the cost of Mountain Mining Canada’s contingency allowance implicitly in the rate of inflation. It reports that 15% contingency allowance is equal to 2.49% rate of inflation. In scenario 2 there is addition of one year to the period of Mountain Mining Canada Ltd short-term budget and in Scenario 3 adds two years to the period of Mountain Mining Canada Ltd short-term budget. Scenario 4 and 5 adds 5 and 10 years to the period of Mountain Mining Canada Ltd long-term budget.