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Old 08-03-2017, 07:06 AM
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Default About Module 1

Hi everybody!
I still have several questions about module1

What is the definition about contingency allowance? Does it means that the ratio of MMCL's projection costs to expected saving of Can-Do?


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  #2  
Old 08-03-2017, 09:20 AM
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You are currently given certain expenses that MMCL is projecting that you may incur as a result of purchasing the mine.

But what if there are more expenses than the projected? That's what contingency allowance is for. So if there is a 10 percent contingency allowance, that means they are allowing for 10 percent extra expenses on each expense that is listed.
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Old 08-03-2017, 09:28 AM
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Thank you very much for this reply.
Do you mean that I should realize any other expenses which should be involved by the MMLC's lists and make a reasonable judgement?
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Old 08-03-2017, 09:36 AM
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Quote:
Originally Posted by yyConsultant View Post
Thank you very much for this reply.
Do you mean that I should realize any other expenses which should be involved by the MMLC's lists and make a reasonable judgement?
You should be looking for some expenses to take out. Not all of the expenses that are listed there are expenses you will incur. Just pick a few that make sense. The exercise already gives you an example of one that you need to take out.
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Old 08-03-2017, 10:54 AM
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However, I still confused about the 15% contingency allowance.
Is that mean the 15% is equal to (pv of some costs add-pv of some costs delete)/pv of MMLC's projected costs?
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Old 08-03-2017, 11:48 AM
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I'm confused why you're worried about what the 15% equals to. It doesn't matter. It's just a number MMLC decided that is reasonable.

Last edited by Sir Issac; 08-03-2017 at 01:55 PM..
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Old 08-03-2017, 12:15 PM
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I might not be remembering this right, but wasn't the 15% contingency already calculated in the spreadsheet given? Not getting your confusion on how to calculate it.
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Old 08-03-2017, 01:54 PM
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Quote:
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I might not be remembering this right, but wasn't the 15% contingency already calculated in the spreadsheet given? Not getting your confusion on how to calculate it.
I think he's trying to figure out what formula MMLC used to get the 15 percent contingency. Which is a waste of time because it is not relevant to the exercise at all.
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Old 08-03-2017, 05:12 PM
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Quote:
Originally Posted by Sir Issac View Post
I think he's trying to figure out what formula MMLC used to get the 15 percent contingency. Which is a waste of time because it is not relevant to the exercise at all.
I've never been able to figure out why in this EOM they seem to posit a false dichotomy.

1) Calculate PV using discount rate of X% assuming 15% contingency
2) Calculate PV using discount rate of X% assuming no contingency, but Y% inflation.

Seems like they forgot the third scenario (what is most likely to happen),

3) Calculate PV using discount rate of X% with 15% contingency and Y% inflation rate.
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Old 08-03-2017, 06:58 PM
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Quote:
Originally Posted by Sir Issac View Post
I think he's trying to figure out what formula MMLC used to get the 15 percent contingency. Which is a waste of time because it is not relevant to the exercise at all.
Thank for the quick reply!
I try to figure out one question in the exercise which indicate that determine the inflation rate in order to get 15% contingency allowance.
Therefore I think it is necessary to clarify all independent variable of the 15% contingency allowance.Something like 15%=f(x,y,z...) and what x,y,z are.

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