What is the appropriate unlevered cost of equity

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Reference no: EM133212685

Assignment:

1. Does iron ore in South Africa seem an attractive investment opportunity for New Earth, based on the material presented in the case?

2. What is the appropriate unlevered cost of equity? The 24% number mentioned in the case is the cost of (highly) levered equity, while the 14% number is a WACC for gold mining. Do you think the unlevered cost of capital for iron production should differ from the gold mining WACC, and if so, how and why?

3. Which valuation approach presented in the case is most appropriate? What are the pros and cons of the different methods?

4. Would you recommend the APV method for this case? Why or why not?

5. What is the value added by the design of the financing package? How does it alter both the return and the risk from the project? Is it effective at reducing the project's operating risks?

6. If you, as CEO of New Earth, were trying to negotiate a better deal with the customers and lenders, in which of the following areas would you concentrate your efforts, and why? (1) ore pricing; (2} interest rates; {3) prepayment schedule; (4) dividends allowed; {5) debt maturity; (6) extension of guarantee program.

7. Should New Earth make the investment?

Reference no: EM133212685

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