BHP is considering buying in a new nickel mine which is forecasted to start earning $30,000,000 of revenue in the 3rd year of operation. Production of nickel is expected to increase by 10% p.a. after, having a consequent impact on revenue. Operating costs are 25% of annual revenue. The mine is kept for 5 years of production, after which the nickel is exhausted and is expected to fetch a sale price of only $5,000,000 in the final year of production.

Setting up the mine requires $40mil today and $20mil in the first year. 70% of capital is financed through debt which has a cost of 8% and shareholders require a 6% premium on what creditors earn.

Complete the Timeline_v2.xlxs workbook to answer parts a) and b), then submit it via theCapital Budgeting question submissionlink in the MST section of Moodle. Answer part c) here using the drop down list.

a) Calculate an appropriate discount rate to be used for capital budgeting. Enter the discount rate in Cell B14 of the timeline spreadsheet, labeled Discount Factor. (2 marks)

b)Work out the NPV and IRR of the project in Cell C20 and C21 of the timeline spreadsheet. (1 mark for correct NPV and IRR, 6 marks for correct cashflows)

c) Would you recommend investing in the project?

(1 mark)