In Country Y, there has been significant activity in mineral exploration and mining activity. The Rocky Mountain Mining Corporation has successfully acquired a license to embark on a new mining project. The company intends to utilize a combination of long-term debt and common equity financing. You have been hired, as a consultant, by the Chief Executive Officer of Rocky Mountain Mining Corporation to assess and estimate the borrowing capacity of the project in question. You begin the exercise by setting up a framework for project financing plan. i) Outline the principal objectives of the project financing plan that you are setting up for your client. ii) Identify some of the most important factors (at least four) you will consider as you begin to design the financing plan for this project. Briefly explain each of these factors that you have identified. iii) Explain the term syndication risk and briefly describe how a typical syndication works in the context of this consultancy work. iv) In the context of this consultancy work, explain the term borrowing capacity of this project. v) Mention two ways in which the borrowing capacity can be estimated. vi) One of the top managers of the Rocky Mountain Mining Corporation has provided the information on the following variables. = Cash revenue during the first full year. = Cash expenses during the first full year. = Noncash expenses deductible for tax purposes each year. = Income tax rate. = Annual growth rate of cash revenues. = Annual growth rate of cash expenses. = interest rate on the debt = total capital cost. = life of the loan the company intends to get measured from the date of the completion of the project. Further the following information is given: = $150, = $26, = 5% , = 1.50, = 0, = 10%, = 40%, = 5%, = 12 . a) Find the present value of the cashflow of the project. Hint: = (1)() [1 ( 1+ 1+ ) ]

Interpret the results. vii) Suppose the sponsors would like to know how much revenue the project would have to generate during the first full year of operations when the indications are that the debt is estimated to be = $350 . Calculate this revenue knowing fully well that the following holds: = ( ) (1 ) [1 ( + 1 + ) ] + Interpret the results. Assume the same parameter values and variables as given previously. viii) Suppose the expected long run growth rate of revenue is 3 percent rather than 5 percent per annum. Calculate the revenue required to pay the debt. Compare to the results in (vii). = + (1 ) [1 ( 1 + 1 + ) ] [ 1 1 + ] (1 ) [1 ( 1 + 1 + ) ] Interpret the results. Assume the same parameter values and variables as given previously.