Equity risk premium for projects

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The beta for coal mining companies was estimated to be 1.4, and the equity risk premium for projects in Indonesia was 8.8%. The most recent government benchmark interest rate was 7.5% (see Exhibit 5). The In- donesian stock market performance, the Indonesian rupiah and U.S. dollar exchange rates, and the Indonesian inflation rates are presented in Exhibits 6, 7, and 8, respectively. The finance manager also prepared the cash flow forecasts for this investment based on the prevailing Indonesia corporate tax rate of 25%, shown in Exhibit 9.

How attractive was this investment? With the recent coal prices dropped to a level lower than those dur- ing the global financial crisis, do you think it is a good time to pursue expansion of coal mining? Would Agus Halim be able to get the green light from the parent firm to pursue it? Would the bankers grant the $12 million term loan for this acquisition?

Reference no: EM133120237

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