Gold Mines of Canada, Inc. is opening a new mine in the Yukon. How should they fund the costs of
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- Gold Mines of Canada, Inc. is opening a new mine in the Yukon.
- How should they fund the costs of this project?
- What discount rate should they use?
- If they issue debt, they will have to pay 9.5% annual coupons on the bonds which will probably be rated BBB+. If they issue new common stock they will not have to pay any dividend, though currently they do pay $2.45 per share for a yield of 5.4%. Last year at this time the stock sold for $40 a share. Currently their debt to equity ratio is 75% and they are in the 35% tax bracket. It will cost GMCI $5 million each year for the next 5 years to get regulatory permits and construct the infrastructure for the mine. In year 6 the mine will begin operations and is expected to generate net cash flows of $7 million for the next 15 years when the mine will be exhausted. At this time the company will need to spend $10 million to decommission the mine.
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Chapter # 10- Forecasting Financial Statements
Section: INTEGRATIVE CASE
Posted Date: September 20, 2023 00:18:50