Morgantown Mining Company is considering a new mining

method at #4883
Morgantown Mining Company is considering a new mining method at its Blacksville mine. The
method, called long wall mining, is carried out by a robot. Coal is removed by the robot-not by
tunneling like a worm through an apple, which leaves more of the target coal than is removed-
but rather by methodically shuttling back and forth across the width of the deposit and devouring
nearly everything. The method can extract about 75% of the available coal, compared with 50%
for conventional mining, which is done largely with machines that dig tunnels. Moreover, the
coal can be recovered far more inexpensively. Currently, at Blacksville alone, the company
mines 5 million tons a year with 2,200 workers. By installing two long wall robot machines, the
company can mine 5 million tons with only 860 workers. (A robot miner can dig more than 6
tons a minute.) Despite the loss of employment, the United Mine Workers union generally favors
long wall mines for two reasons: The union officials are quoted as saying, (1) "It would be far
better to have highly productive operations that were able to pay our folks good wages and
benefits than to have 2,200 shovelers living in poverty," and (2) "Long wall mines are inherently
safer in their design." The company projects the financial data given in Table ST10.3 upon
installation of the longwall mining.TABLE STI0.3(a) Estimate the firm's net after-tax cash flows
over the project life if the firm uses the unit-production method to depreciate assets. The firm's
marginal tax rate is 40%.(b) Estimate the firm's net after-tax cash flows if the firm chooses to
depreciate the robots on the basis of MACRS (seven-year property classification).View Solution:
Morgantown Mining Company is considering a new mining method at

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