You have recently joined a firm of financial advisers whose specialty is advising sponsor groups that are
Question:
You have recently joined a firm of financial advisers whose specialty is advising sponsor groups that are considering project finance transactions. Your company has been engaged by an SPV that has been set up to undertake a $1.25 billion (estimated) iron ore mining project located in the Western Australia.
Answer the following in relation to this project:
a. Suggest and explain four material costs that you would expect to be included in the $1.25b capital budget.
b. Identify three material risks to which you would expect this project might be exposed. Explain each risk that you have identified, including the possible impact that it could have on the project. Then, suggest and explain what you consider to be an appropriate mitigation technique for each of these risks.
c. Explain how you would go about setting up a financial model for this project. In your explanation, identify and describe the main worksheets in the model, and specify items that you would include on the model's cover / assumptions sheet.
d. Explain the calculation(s) that you would perform in advising the client whether they should proceed with the proposed project. In your answer, specify all of the key variables that you would include in your analysis, and explain in detail how to identify / quantify each in practice.
Corporate Finance Core Principles and Applications
ISBN: 978-0077905200
3rd edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford