Spreadsheets 7:79 The Southern Guru Copper Company operates a large mine in a So

Question

Spreadsheets 7:79 The Southern Guru Copper Company operates a large mine in a South American country. A legislator 7i in the National Assembly said in a speech that most of the capital for the mining operation was provided by loans from the World Bank; in fact, Southern Guru has only $1.5 million of its own money actu- ally invested in the property. The cash flow for the mine is: 7-8 Year Cash Flow 0 $-0.5M 0.9M 3.5M 3.9M 8.6M 4.3M 3.1M 1.2M 7-8 4 The legislator divided the $25.5 million total profit by the $1.5 million investment. This produced, he said, a 1700% rate of return on the investment. Southern Guru, claiming the actual rate of return is much lower, asks you to compute it

Explanation / Answer

Total Investment $1.5 m

Total profit $25.5 m

Period $7 years

Average annual profit $3.64 m

Annual return 243% (3.64 / 1.5)

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