Loading...

Messages

Proposals

Stuck in your homework and missing deadline? Get urgent help in $10/Page with 24 hours deadline

Get Urgent Writing Help In Your Essays, Assignments, Homeworks, Dissertation, Thesis Or Coursework & Achieve A+ Grades.

Privacy Guaranteed - 100% Plagiarism Free Writing - Free Turnitin Report - Professional And Experienced Writers - 24/7 Online Support

New earth mining case study solution

17/11/2021 Client: muhammad11 Deadline: 2 Day

Finance Assignment - New Earth Mining

New Earth Mining, Inc.1 Based in Denver, New Earth Mining is one of the largest U.S. precious-metal producers, and has experienced significant growth in the last decade, mainly due to increasing gold prices (from $ 300 to $ 1,700 per ounce). New Earth executives worried about the sustainability of gold prices at their current levels. The company felt it was necessary to implement a diversification program that would reduce its dependence on precious metals. Therefore, New Earth recently started investigating the possibility of diversification in base metals and other materials. A new investment opportunity appeared in early 2012. New Earth was informed of the existence of a major body of iron ore close to the massive Kalahari Manganese field in South Africa. The company felt that an investment in iron ore provided a strategic fit for its diversification objective. The price of iron appreciated more than five-fold from 2002 to 2012, but would probably fall by about 20% to $ 80 for the project lifetime. New Earth hired Drexel Corporation, an engineering and construction firm, to analyze the extent of the deposit and to determine the cost and feasibility of establishing a mine site close to Kalahari. The engineering firm found that the field contained 30 million tons of ore with an average iron content of 60%. At the projected extraction rate of 2 million tons per year, it would take 15 years to deplete the ore body. Drexel estimated that the proposed venture in South Africa could be operational by the beginning of 2015. The total investment in infrastructure to support the development of the mine would be $ 200 million, with 40% of the investment required at the beginning of 2013 and the remaining required at the beginning of 2014. These investments would be made in South African Rand (ZAR) and would include construction costs and related insurance, operational costs, and $ 20 million in working capital. By November 2012, New Earth was able to produce a pro forma analysis of the profitability of the new investment. This is shown in the cash flow analysis "Cash Flows" in the attached spreadsheet. Since iron is sold in the international market, the revenues will be in US Dollars (USD), but all costs for operating the mine will be ZAR. Taxes will be paid in the U.S. All numbers in the spreadsheet "Cash Flow" have been converted to USD. By December 2012, New Earth had tentatively secured a few large steel producers located in China, Japan, and South Korea as major customers. Iron Ore would be shipped to these countries via a South African shipping company. New Earth also negotiated a financing package with the potential customers and a syndicate of U.S. banks. The financing package consisted of 1 This case is a summarized and adapted version of Harvard Business School Case 9-913- 548, "New Earth Minin, Inc.", 2013, by W.E. Fruhan, and W. Wang.

three loans, totaling $ 160 million. The remaining $ 40 million would be provided as equity by New Earth itself, paid from its cash position. As the revenues from the venture would be in USD, the loans would also be given in USD. The spreadsheet "Debt" shows when the loans would be provided as well as the repayment schedule. The senior secured and unsecured debt would be normal coupon-paying debt, whereas the senior subordinated debt would be a zero-coupon loan, implying that in 2024 both the principal of $ 60 million as well as the accrued interest would be paid. The spreadsheet "Market Rates" shows current interest rates in the U.S. and South Africa, the exchange rate, the iron price, as well as stock market data. New Earth wants to answer the following questions:

1. What is the net present value of the project? (They wonder whether the WACC or the APV methodology is the right approach.)

a. Briefly explain why you recommend WACC or APV. b. Calculate the appropriate discount rate. c. Calculate the net present value of the project. d. Calculate the value of the tax shield from the loans.

2. As part of the investment needs to be made early 2014 in ZAR, the company wants to hedge the exchange rate. They wonder whether they should hedge using a forward contract or an option contract.

a. At what forward price can they hedge the investment? b. What would be the cost of an at-the-money option? c. Which hedge strategy do you recommend?

3. They also wonder whether they should hedge the ZAR/USD-risk in the cash flows from the venture. If they decide to hedge, should they hedge the entire cash flow or only part of it? And if only partly, which part of the cash flow should they hedge?

4. For the years 2024-2029, what is your estimate of the volatility of the cash flow (in percentage)? (If you cannot answer this, use 35% as an estimate in the next question.)

5. The senior subordinated debt needs to be repaid in 2024 ($ 30 million plus compounded interest). Using the option approach to value debt and equity, what is the value of the subordinated debt at the beginning of 2013 and what is the implied cost of this debt? Hint: note that when repaying the debt in 2024, the venture will last for five more years. It is the present value of these last five cash flows that is the underlying value of the option.

You are asked to write a short management report addressing the questions above. Please that the report is clear in itself, but you can add a spreadsheet with more detailed calculations. Note that the spreadsheet contains the option functions =bscall(), =bsput(), = fxcall(), and fxput().

Homework is Completed By:

Writer Writer Name Amount Client Comments & Rating
Instant Homework Helper

ONLINE

Instant Homework Helper

$36

She helped me in last minute in a very reasonable price. She is a lifesaver, I got A+ grade in my homework, I will surely hire her again for my next assignments, Thumbs Up!

Order & Get This Solution Within 3 Hours in $25/Page

Custom Original Solution And Get A+ Grades

  • 100% Plagiarism Free
  • Proper APA/MLA/Harvard Referencing
  • Delivery in 3 Hours After Placing Order
  • Free Turnitin Report
  • Unlimited Revisions
  • Privacy Guaranteed

Order & Get This Solution Within 6 Hours in $20/Page

Custom Original Solution And Get A+ Grades

  • 100% Plagiarism Free
  • Proper APA/MLA/Harvard Referencing
  • Delivery in 6 Hours After Placing Order
  • Free Turnitin Report
  • Unlimited Revisions
  • Privacy Guaranteed

Order & Get This Solution Within 12 Hours in $15/Page

Custom Original Solution And Get A+ Grades

  • 100% Plagiarism Free
  • Proper APA/MLA/Harvard Referencing
  • Delivery in 12 Hours After Placing Order
  • Free Turnitin Report
  • Unlimited Revisions
  • Privacy Guaranteed

6 writers have sent their proposals to do this homework:

Academic Master
WRITING LAND
Quick Finance Master
Maths Master
Accounting Homework Help
Instant Assignment Writer
Writer Writer Name Offer Chat
Academic Master

ONLINE

Academic Master

I have worked on wide variety of research papers including; Analytical research paper, Argumentative research paper, Interpretative research, experimental research etc.

$45 Chat With Writer
WRITING LAND

ONLINE

WRITING LAND

I am a professional and experienced writer and I have written research reports, proposals, essays, thesis and dissertations on a variety of topics.

$27 Chat With Writer
Quick Finance Master

ONLINE

Quick Finance Master

I have read your project description carefully and you will get plagiarism free writing according to your requirements. Thank You

$30 Chat With Writer
Maths Master

ONLINE

Maths Master

I have read your project details and I can provide you QUALITY WORK within your given timeline and budget.

$32 Chat With Writer
Accounting Homework Help

ONLINE

Accounting Homework Help

As an experienced writer, I have extensive experience in business writing, report writing, business profile writing, writing business reports and business plans for my clients.

$40 Chat With Writer
Instant Assignment Writer

ONLINE

Instant Assignment Writer

I have read your project description carefully and you will get plagiarism free writing according to your requirements. Thank You

$35 Chat With Writer

Let our expert academic writers to help you in achieving a+ grades in your homework, assignment, quiz or exam.

Similar Homework Questions

Coefficient of friction symbol - An asset turnover ratio of 1.75 can be interpreted as - Spinal needle types ppt - Cla val cf1 c1 - Compare and contrast the elements of a life review with those of ordinary remembering - Mini Paper1 - Information Technology - Truth in montana 1948 - Cim certificate in professional marketing official module guide - Counting subatomic particles worksheet - The rocking horse winner discussion questions - Unit VIII Journal - Nutanix rf2 data loss - What is a wave cut platform - Apa format - Wide sargasso sea setting - Cold formed steel header - National childcare accreditation council 2011 - Teacher responsibility for student safety - System requirements checklist input example - Playground observation essay - A small town is served by many competing supermarkets - 200 word discussion please follow instructions and make sure its authentic work due tomorrow at 4pm - Shadow health focused assessment cough - Jaycar ethernet crimping tool - Benchmark : Business Plan Part 3 - The Artwork Of Jeff Koons Relate - 3 day lesson plan - Organizational culture examples in movies - Effective public relations scott m cutlip pdf - Tech training and placement services - Diamante poem dog and cat - 65.5 kg in stone - Sesame seeds acidic or alkaline - Boston consulting group test - 7 billion and counting - 3 5 x 1 3 - Florida vocational rehabilitation waiting list - Pooled development fund act - Masters by research utas - Sjsu graduate acceptance rate - Chase heidvogel omaha - Excel basic skills english and mathematics year 2 pdf - Coir log suppliers brisbane - Numbering plan in telecommunication - American chemical corporation case study solution - HA599 Unit 4 Discussion - Silver quays kangaroo point - Importance of traffic rules and signs - Create Case Studies - The body - Herbivores in the sahara desert - Tabuk pharmaceuticals texas - School of thought approaches to entrepreneurship - What happens in hamlet john dover wilson pdf - Sodium thiosulphate hydrochloric acid experiment - Collaboration diagram for student registration system - Questions about public speaking class - Philippine inventory of chemicals and chemical substances list - Wind turbine sankey diagram - American Government due 9/3/20 - AG - Chalk and wire saint leo - Indigo policies and procedures - Certificate ii or higher in community pharmacy - Exterior angle inequality theorem activity - Theory marketing partners - Uk network of mindfulness teacher training organisations - How is the energy value of foods determined - Unit 3 Group Project Legal and Regulatory compliance - What is channel stuffing in accounting - All my own work answers - The ugly duckling synopsis - Pmba campbellsville - Hank williams the third three shades of black - Aunt martha incidents in the life of a slave girl - Geoff boorman oil edenbridge - Open market operations occur when the reserve bank of australia - Leadership and conflict management presentation soc 110 - English Homework - Issue Spotter: Torts - Assignment: Agenda Comparison Grid and Fact Sheet or Talking Points Brief - Snell's equity 33rd edition - Business policy - They say i say chapter 7 exercise answers - Gillette distribution channel - Ackademicks - Respond to the discussion board - Chemistry vcaa study design - 15-25 lbs in kg - Approaches to psychology practice worksheet answers - Of mice and men essay questions and answers - Jane eyre discussion questions - Draw out the benetton supply chain - Mornington peninsula planning zones - Sex and gender lips 6th edition - Mcgraw hill connect ed - Organizational leadership - Kepner tregoe decision making model - The black balloon quotes - What is a scientific merit