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

Queensland maritime museum parking - Calculating kinetic energy worksheet - Open market operations rba - Discussion 507 - Bmo swot analysis - Professional thesis writing service - Configure link local ipv6 address cisco - +27737189846,Abu Dhabi®=SAFE AFFORDABLE MISOPROSTOL 200 MCG MIFEPACK TABLETS FOR SALE IN Abu Dhabi®BUY MTP KIT, - Phet colorado circuit construction kit - Security architecture and design - Analysis of eleven by sandra cisneros - Ex post facto experiment - APA assignment - 6A - What is the difference between strong electrolyte and weak electrolyte - Gel electrophoresis virtual lab answers quizlet - Rip van winkle essay introduction - John naisbitt megatrends 2000 - Aon care ghs claim form download - Benetton we on death row campaign - E24 2 post balance sheet events - Watchmen essay thesis - Molar mass worksheet and key answer key - Topworx d series manual - Imaths 6 student book answers - What is the difference between tropospheric ozone and stratospheric ozone - Incident Response - Principles of comparative politics william roberts clark - When were motte and bailey castles first built - Discussion - How to improve mesh quality in fluent - Nurse practitioner Master Prg. Creative Unique Power Point Presentation ( No more than 15 Slides) - Convert google slides to google doc - The science of psychology an appreciative view looseleaf - Apollo shoes case assignment answers - Human cardiovascular physiology blood pressure and pulse determinations - Which theme from macbeth do these lines support - Virtual team - Math 251 8 assignments - ORG 535 Week 5 Assignment - How to create an ipo chart for c++ - 750 10 unc 2a - 5x 1 8x 23 - Communication mosaics an introduction to the field of communication - Mechanical vibrations tutor - Northwestern coniferous forest animals - What is integrity interview question - Ati capstone maternal newborn assessment - Gel filtration chromatography separates molecules based on - Cengagenow online teaching and learning resource from cengage learning - Resource allocation in software project management ppt - Week 11-6521 - Clawfoot bathtub warehouse san marcos - M30 hex nut dimensions - 10 seconds of math - Forms of adaptation in international marketing - Knight capital case study - Fruitvale station clips - Alternative Energy Systems - Acara work samples year 3 writing - Primary school leadership speech - Excel basic skills english and mathematics pdf - Evaluating arguments practice - Case studies - Compare and contrast biosphere and ecosystem - Hw 5 - 200 words - Moodle ubss - Threaded 1 - Assignment: Global Healthcare Comparison Matrix and Narrative Statement - Thomas hardy ale clone - Why do organizations still have information deficiency problems - Wave speed equation triangle - Sunflower nutraceuticals simulation answers - Does domestic partnership affect fafsa - How to increase roa in capsim - 330 km to mph - Steve martin death of my father - CHRISTIAN SERVANT LEADERS - 1954 rock and roll - Sex trafficking - Art discussion questions - Do birds have rubber feet - How to analyze a quote - Wayland custom woodworking payroll project answers - What did eratosthenes accomplish - 20/21 FINANCIAL AID APPEAL - Issuing common shares journal entry - Bbc dance mat typing - University personal statement examples primary teaching - Open source incident management - Small engine repair course uk - Build an atom game - Soft edge rectangle picture style powerpoint 2016 - Hp authorized service provider - Boiling point depression formula - Coach tulin 80 day obsession - The medical and dental defence union of scotland - Chapter 18 assessment american government - Become friendlier more approachable crossword