# Fortune Minerals The NICO Project Case Solution

Solution Id Length Case Author Case Publisher
2110 605 Words (4 Pages) Chris Sturby, Melissa Jean Ivey Publishing : 9B11B012
This solution includes: A Word File and An Excel File

In the year 2007, the NICO project has shown negative NPV values for all scenarios of the interest rates. In the year 2007 the expected metal prices and quantity of output are low as compared to the year zero investment required for the project as given in the case study. This indicates that for the year 2007 Fortune Minerals will incur a loss if they decide to go ahead with the project, this is because of negative Net Present Values.

## Following questions are answered in this case study solution

1. Answer 1 & 2: Net Present Value (NPV) and Sensitivity Analysis

2. What is your recommendation for the Project and why?

## Case Analysis for Fortune Minerals The NICO Project Case Solution

#### 1. Answer 1 & 2: Net Present Value (NPV) and Sensitivity Analysis

The following calculations assume that Year 1& 2 Cash Flows and Year 3 to 15 have been discounted to Year 1 and Year 2 respectively.

 Gold Cobalt Bismith At January 2007 oz Pounds Pounds Metal Price \$525 \$16.50 \$4.50 Year 1 & 2 Output 69000 3250000 3230000 Year 3 to 15 output 24000 3250000 3230000 Sum of costs and cash flows Capital Costs of Mining Year 0 (\$215,200,000) Year 1 & 2 Cash Flows \$36,225,000 \$53,625,000 \$14,535,000 \$104,385,000 Year 3 to 15 Cash Flows \$12,600,000 \$53,625,000 \$14,535,000 \$80,760,000 Interest Rate PV NPV IRR NPV in Canadian Dollars 10% \$161,639,256.20 (\$53,560,743.80) -10% (\$63,762,790.24) 9% \$163,740,131.30 (\$51,459,868.70) (\$61,261,748.45) 8% \$165,891,460.91 (\$49,308,539.09) (\$58,700,641.78) 7% \$168,094,986.46 (\$47,105,013.54) (\$56,077,397.07)

 Gold Cobalt Bismith At January 2008 oz Pounds Pounds Metal Price \$850 \$40.00 \$15.00 Year 1 & 2 Output 70000 3460000 3590000 Year 3 to 15 output 24000 3460000 3590000 Sum of costs and cash flows Capital Costs of Mining Year 0 (\$240,200,000) Year 1 & 2 Cash Flows \$59,500,000 \$138,400,000 \$53,850,000 \$251,750,000 Year 3 to 15 Cash Flows \$20,400,000 \$138,400,000 \$53,850,000 \$212,650,000 Interest Rate PV NPV IRR NPV in Canadian Dollars 10% \$404,607,438.02 \$164,407,438.02 60% \$160,868,334.65 9% \$409,946,553.32 \$194,746,553.32 \$190,554,357.46 8% \$415,414,951.99 \$200,214,951.99 \$195,905,041.09 7% \$421,017,119.40 \$205,817,119.40 \$201,386,613.89

#### 2. What is your recommendation for the Project and why?

To choose which of the projects the Fortune Minerals should choose, NPV rule applies as stated below:

Amount to Pay

## Calculate the Price

Approximately ~ 1 page(s)

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