1. Cash Flow Estimation: Project Feasibility Analysis

Situation: Simon James, who holds 55% of common stocks, has become the Chairman of Copper Mining Pcl. (the Company) in since 1995. From year 1995-2018, the Company has been successful in copper mining and production in ASEAN region and become one of the major players in ASEAN. In year 2019, CEO proposes an annual corporate plan to carry out a new copper mining project in Australia (i.e. the expansion project). After approving the corporate plan, the Board of Directors requests both financial advisors and engineers to calculate real cash flow (RCF), payback period (PP), net present value (NPV), and profitability index (PI). Key assumptions are displayed as follows:

Technical Assumptions:

Production capacity = 700,000 tons/year from year 1 - 3, 500,000 tons/year from year 4 - 6, and 400,000 tons/year from year 7 - 8.

Initial capital investment (Year 0 only) = 12,000 Million US $

Operation Period = 8 years and the firm can start selling copper ore from year 1.

At the end of year 8, the company can sell its mining equipment and machine (i.e. salvage) in the secondhand market and earn a revenue of 5,000 Million US $

Since the new project will start copper production in year 1; hence, operating expenses will exist from year 1 - 8.

Economic Assumptions:

Real discounted rate equals 8% from year 0 - 8

Inflation equals 3% from year 0 - 8

Tax rate = 20% of Taxable Income

Two key drivers of sales are: (1) GDP growth rate will be upside from year 1 - 8 and (2) copper price is predicted to stable from year 1 - 8.

Creditworthiness Assumption:

The Company's credit rating is excellent and has sufficient internal capital for this project investment.

After completing feasibility analysis, should you recommend the Board of Directors to make a decision either to approve or decline this project?