Twin Lake Mining Assignment
Background Info:
Mining Company: $16 Million + $2.6 million annually
City Council: none(every dollar spent must be collected by increasing taxes)
The Bond:
Principal: is due once, 25 years from now. May be managed by depositing capital in an interest bearing account that compounds for 25 years
Interest: Payable yearly
Capital Costs:
Filtration Plant: $20 Million
Plant Improvements: $8 million
Paving Roads: $4.8 million
Annual Costs:
Road Maintenance: $600,000 / yr
Exercise:
You represent top management at Twin Lakes Mining company. The EPA has fined the company $30 Million for pollution. The mine is situated on a lake and if the company decides to build a filtration plant it would cost $20 Million. If the company builds the plant the fine would then become $10 Million and the company could bottle water and sell it to generate revenue. The company has set a limit of $8million capital cost and $1.3 million yearly as ceiling that you will pay on improvements. The town has a very small tax base and cannot afford to build the plant on its own. However, it has been suggested that the town might float a 25 year bond issue to cover the costs with payment of interest and repayment of principal to be made by the company.
You (the company) have already agreed to make approx $4 million worth of investments to reduce dust around the plant. The major problem with the town is over road dust and road paving. It has been stated that the paving of all roads will cost $2.4 Million. Half of these are company owned roads. Estimates on the town roads are $1.2 million for paving and $150,000 for maintenance. The town would like you to pay for all of this. Privately, you think you should spend up to $800,000 in paving and contribute $80,000 to annual maintenance but the less you can spend the better off you willl be. You would like to see the following:
a) reduction of annual taxes from $400,000 to $200,000 on all company owned land
b) reduction of the right of
Mining Company: $16 Million + $2.6 million annually
City Council: none(every dollar spent must be collected by increasing taxes)
The Bond:
Principal: is due once, 25 years from now. May be managed by depositing capital in an interest bearing account that compounds for 25 years
Interest: Payable yearly
Capital Costs:
Filtration Plant: $20 Million
Plant Improvements: $8 million
Paving Roads: $4.8 million
Annual Costs:
Road Maintenance: $600,000 / yr
Exercise:
You represent top management at Twin Lakes Mining company. The EPA has fined the company $30 Million for pollution. The mine is situated on a lake and if the company decides to build a filtration plant it would cost $20 Million. If the company builds the plant the fine would then become $10 Million and the company could bottle water and sell it to generate revenue. The company has set a limit of $8million capital cost and $1.3 million yearly as ceiling that you will pay on improvements. The town has a very small tax base and cannot afford to build the plant on its own. However, it has been suggested that the town might float a 25 year bond issue to cover the costs with payment of interest and repayment of principal to be made by the company.
You (the company) have already agreed to make approx $4 million worth of investments to reduce dust around the plant. The major problem with the town is over road dust and road paving. It has been stated that the paving of all roads will cost $2.4 Million. Half of these are company owned roads. Estimates on the town roads are $1.2 million for paving and $150,000 for maintenance. The town would like you to pay for all of this. Privately, you think you should spend up to $800,000 in paving and contribute $80,000 to annual maintenance but the less you can spend the better off you willl be. You would like to see the following:
a) reduction of annual taxes from $400,000 to $200,000 on all company owned land
b) reduction of the right of