The writer is very fast, professional and responded to the review request fast also. Thank you.
Presentation/PPT
27/08/2022
Kidman Resources is considering a binding agreement with Tesla inc. to supply 5000 tonnes of lithium hydroxide for three years. However in order process the required amount of lithium hydroxide, Kidman Resources must consider whether to build a new refinery or outsource their supply ore (Li20).
Kidman Resources has undertaken a feasibility study costing $2 million to explore these two strategies.
Option 1: Building a new refinery
The construction and installation of a new refinery will cost $25 million. In addition, a processing plant will also need to be constructed at a cost $5 million. This plant will need to be supplied with grinding machines, DMS flotation machines and other equipment at a total cost of $15 million. Kidman Resources’ current fleet of Haul trucks, water carts and dump trucks will meet the needs for this project, however until recently, the fleet has been earning a rental income of $100,000 per year.
Under the agreement with Tesla inc., the lithium mined is expected to generate a revenue of $16 million per year, which will increase by 2.5% per annum adjusted for rising costs. Due to the additional complexities involved with the construction and management of this new refinery, 5 new engineers (yearly salary per engineer $180,000) will replace 5 existing engineers (yearly salary per engineer $120,000). All other remaining labour force required is expected to cost $3 million per annum for the duration of the project.
For tax reasons you will expense the cost of the processing plant immediately. The cost for the construction and installation of the new refinery and associated machines and equipment will be depreciated over three years using the straight-line method. Due to the nature of the mining project, the machines and equipment will likely have a salvage value of $9 million at the end of three years. Finally, the required net working capital is $2 million.
Option 2: Outsourcing the supply of ore
Alternatively, Kidman Resources can contract BHP to supply the required ore to process into lithium hydroxide. Based on the required amount of lithium hydroxide, management has quoted a total cost of $30 million. BHP has however offered this rate on the condition that Kidman Resources pays 20% of the total cost in advance in the beginning of the year, with the remaining paid in equal instalments thereafter. Kidman Resources will process the ore into lithium hydroxide using existing facilities at an expected cost of $4.5 million per year.
Additional Information:
Evaluate the two options using NPV analysis and clearly identify which of the two alternatives results in a higher valuation for Kidman Resources. Include your opinion.
The writer is very fast, professional and responded to the review request fast also. Thank you.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more