The paper "Corporate Investment Decisions" is a wonderful example of a case study on finance and accounting. An investment opportunity is seen by Nem limited and thus the company is going to realize a profit from an investment based from Net present value approach in terms of the discounted cash flow. The ore deposits are 30 tonnes and the demand is estimated to increase for the next 4 years to the period ending 2016. China is one of the; largest customer of the product and contribute o 60% of the demands.
This positive trend and thus investment is ground to earn a constant return due to the high demand of the product in the market. The source of capital of the new investment is ideal since the company is going to diversify the outlay in four distinctive financiers in order to reduce the lending interest rate and increase the level of finance. This, therefore, is going to make the business go strong in terms of finance hence the new project will not interfere with existing business operations in terms of operational risk. Introduction Item limited intends to invest in ore mining in south Africa Saharan since An opportunity has arisen in ore mining in which the business is going to realize from an investment based on cash flow analysis that depicts positive net present value as well as the value of ore deposit and time it takes before the material becomes obsolete.
The project will require an initial investment outlay of 200 million dollars and intends to rise in the following financial structure by the shareholders and debt holder of the business investment Millions Equity 40,000 US Bank syndicate (10%) 60,000 Chinese still producer (9%) 60,000 Japan Korea government 40,000 Total capital 100,000 Financial analysis Pros and cons of the valuation method VP of operation approach This an approach that considers the weighted average cost of capital in valuing the returns of the investment both present and future.
The approach is ideal since it considers both debt and equity in valuing the stock return hence there is a reduction of investment risk. The disadvantage of the model is that it assumes that the current economic condition will remain the same into an unforeseeable future which is not real thus acting as a limitation to the model.
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