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Introduction:-
Southport Minerals, Inc. is the largest U.S. sulphur producer had been enjoying sharply increasing profitability after five years of low profitability. So they were financially well positioned for significant diversification and had high liquidity in the system with no debt in their capital structure. So they were in the hunt for attractive investment opportunities.
In 1967, Southport Minerals found an opportunity for a major financial commitment to develop a copper mine in Indonesia. The major body of the copper ore was at an extremely inaccessible location in the Firstburg, Indonesia. Southport Indonesia (SI), a wholly-owned subsidiary of Southport Minerals, entrusted with a responsibility of mining. While contemplating to invest in the copper mine Southwest Minerals tentatively negotiated a complex financing package for the project. While assessing the new investment plan Southport Minerals, Inc came up with 4 different methods for analyzing the investment worth of the project:
Discount at Southport Minerals' cost of capital, ignore the specifics of the financing choice
Discount at a premium above Southport Minerals' cost of capital; ignore the specifics of the financing choice
Discount at Southport Minerals' cost of capital, thereby taking into consideration the specific financing choice
Southport Minerals, Inc. is the largest U.S. sulphur producer had been enjoying sharply increasing profitability after five years of low profitability. So they were financially well positioned for significant diversification and had high liquidity in the system with no debt in their capital structure. So they were in the hunt for attractive investment opportunities.
In 1967, Southport Minerals found an opportunity for a major financial commitment to develop a copper mine in Indonesia. The major body of the copper ore was at an extremely inaccessible location in the Firstburg, Indonesia. Southport Indonesia (SI), a wholly-owned subsidiary of Southport Minerals, entrusted with a responsibility of mining. While contemplating to invest in the copper mine Southwest Minerals tentatively negotiated a complex financing package for the project. While assessing the new investment plan Southport Minerals, Inc came up with 4 different methods for analyzing the investment worth of the project:
Discount at Southport Minerals' cost of capital, ignore the specifics of the financing choice
Discount at a premium above Southport Minerals' cost of capital; ignore the specifics of the financing choice
Discount at Southport Minerals' cost of capital, thereby taking into consideration the specific financing choice