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    Unit Contribution Gold: Years From Present Time

    Uploaded by

    Juan Camilo Gómez Robayo
    The document shows projections for a gold mining operation over 6 years. It is projected that production will decrease by 10% each year while fixed costs like salaries, depreciation, and total fixed costs increase annually. As a result, EBIT is projected to steadily decline each year as the contribution margin per unit decreases. By year 6, the project is projected to be unprofitable and gold extraction should stop due to the declining production and rising fixed costs outweighing revenues.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd

    Unit Contribution Gold: Years From Present Time

    Uploaded by

    Juan Camilo Gómez Robayo
    24 views4 pages
    The document shows projections for a gold mining operation over 6 years. It is projected that production will decrease by 10% each year while fixed costs like salaries, depreciation, and total fixed costs increase annually. As a result, EBIT is projected to steadily decline each year as the contribution margin per unit decreases. By year 6, the project is projected to be unprofitable and gold extraction should stop due to the declining production and rising fixed costs outweighing revenues.

    Original Title

    Workshop5_JuanGomez

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    © © All Rights Reserved

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    The document shows projections for a gold mining operation over 6 years. It is projected that production will decrease by 10% each year while fixed costs like salaries, depreciation, and total fixed costs increase annually. As a result, EBIT is projected to steadily decline each year as the contribution margin per unit decreases. By year 6, the project is projected to be unprofitable and gold extraction should stop due to the declining production and rising fixed costs outweighing revenues.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    24 views4 pages

    Unit Contribution Gold: Years From Present Time

    Uploaded by

    Juan Camilo Gómez Robayo
    The document shows projections for a gold mining operation over 6 years. It is projected that production will decrease by 10% each year while fixed costs like salaries, depreciation, and total fixed costs increase annually. As a result, EBIT is projected to steadily decline each year as the contribution margin per unit decreases. By year 6, the project is projected to be unprofitable and gold extraction should stop due to the declining production and rising fixed costs outweighing revenues.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 4

    Year market price / ounce cost/ounce unit contribution

    Expected incre 7% 5%
    0 1200.0 670.0 530.0
    1 1284.0 703.5 580.5
    2 1373.9 738.7 635.2
    3 1470.1 775.6 694.4
    4 1470.1 814.4 655.7
    5 1470.1 855.1 614.9
    6 1470.1 897.9 572.2

    0 530.0
    1 580.5
    2 635.2
    3 694.4

    Unit contribution gold


    750.0

    700.0

    650.0

    600.0

    550.0

    500.0
    0 1 2 3
    Years from present time
    Amount of gold ounces Profit Salaries Depreciation Total Fixed costs Ebit
    decrese in 10%

    2560 1486080 900000 85000 985000 501080


    2304 1463512.32 900000 112000 1012000 451512.32
    2073.6 1439996.69 900000 139000 1039000 400996.694
    1866.24 1223623.42 900000 81000 981000 242623.421
    1679.616 1032868.02 900000 54000 954000 78868.0232
    1511.6544 864949.783 900000 27000 927000 -62050.2166

    Nopat (First projection)


    350000 600000

    300000 500000

    250000 400000

    200000 300000

    150000 200000

    100000 100000

    3 50000
    0
    0 1
    0
    1 2 3 -100000
    Nopat Explanation:
    We can see in the table and the 3rd graph the dinamic or projection results of the operation. From year one to
    there is a steady decline in the results (EBIT). This mainly because of the constant increase in fixed costs, deprec
    especifacally, and the constant drop of production of ounces of gold. Since the price and cost of of gold increase
    325702 somewhat the same proportion, the key factors for these years are how the accumulated depreciation keep gro
    293483.008 result that in each year the company has to make an new investment to sustain production. However, since it is
    260647.851 extraction of a raw material (scarce resource) it is expected that the production drops eventually throughout th
    is why eventough there are new investments, there is a steady drop in the production. These factors combined
    157705.223 the costs will increase in these first years while revenue decreases due to the drop in production. From that poi
    51264.2151 can see a more pronounced drop in the results from years 3 to 6. The reasons behind this rely on the fact that t
    -62050.2166 price per ounce after year 3 hits a maximum. After this period the selling remains constant despite that the cost
    to increase throughout the years. The immediate result is that the contribution margin per unit is less over the
    key facor, together with the constant decline in production and the pending accumulated depreciation makes th
    will absorb most of revenues generated. This dyknamic goes throughout the last part of the project. At year 6 w
    that the project is no longer profitable, and should its extraction should stop. Notice that salaries are constant,
    be changing throught the years (inflation, changes in wages, etc) this means that costs could be even higher ma
    question the importance of fixed costs and the projections you make from the in the future.

    EBIT 6 yr projection
    600000

    500000

    400000

    300000

    200000

    100000

    0
    0 1 2 3 4 5 6 7
    -100000
    e operation. From year one to year three
    t increase in fixed costs, depreciation
    rice and cost of of gold increase in
    mulated depreciation keep growing as the
    production. However, since it is the
    drops eventually throughout the years. That
    ction. These factors combined make that
    op in production. From that point on, we
    hind this rely on the fact that the selling
    s constant despite that the costs continue
    margin per unit is less over the years. This
    mulated depreciation makes that the costs
    part of the project. At year 6 we can see
    tice that salaries are constant, and should
    costs could be even higher making it
    the future.

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