Assesses how the lucrativeness of a funding opportunity can be increased through the chalking out of financing and operating rulings which will result in managing investment returns or lessen the risks associated with the project.
Operating Cash Flow
Free Cash flow of Assets
Present ValueTotal Present Value
Interest tax Shield
Base Case Value
Side Effect: Tax shield
Adjusted Present Value
1. What are the risks of the Firstburg investment proposal?
2. How did the specific financing choice available to Southport Minerals alter both the risk and return potential of the Firstburg investment proposal? How effective was it in dealing with the project risks?
3. If you were trying to negotiate an improvement in the terms of the Firstburg financing proposals, in which of the following areas would you concentrate your efforts, and why would you concentrate them there? (a) interest rates; (b) debt maturities; (c) allowable dividends; (d) price terms?
4. Which method of analyzing the value of the Firstburg investments proposal to Southport Minerals is most reasonable? Why are the other methods less reasonable? Provide your best estimate of the project’s value by using the adjusted present value approach.