1. You are an investment analysis expert working for an investment company and you are offered an Iron field investment opportunity. If risk free rate is 1%, using certainty equivalent method, should your company invest in it or not? Explain why or why not. (Refer to Table 1 below, no decimals are needed)

Table 1

Initial Investment	$100 Million to be depreciated over 5 years using straight line method with zero salvage value
Investment Period	5 years
Total Iron Capacity	1 billion tonne, extracting 200 Million tonne each year
Cost of Extraction per tonne	$30
Forward Price of Iron in next 5 years	$120 per tonne with constant 2% increase each year
Tax rate	30%

(1 mark revenue, 1 mark processing cost, 1 mark depreciation, 1 mark EBIT, 1 marks NOPAT, 1 mark adding back depreciation, 2 marks NPV, 1 mark for investment decision and 1 mark for the investment decision reason)

(10 marks)

2. Explain why forward rates are considered reliable estimates to be used in investment analysis. (at least three valid points, each 2 marks)