Q1. Given the following assumptions, construct cash flows on both a de-levered and leveraged basis. Make sure to label each clearly. Project involved is a petrochemical plant. Indicate whether you agree that it could financed and leveraged as indicated, and justify your answer.
Assumptions:
Capital Expenditures: $200 M
EBITDA: $60 M per year for 5 years
Depreciation: $40 M per year for 5 years
Tax Rate: 30%
Residual Value: $100 M at end year 5
Project Loan: $100 M
Interest Rate: 6%
Amortization: $25 M, starting end year 2
Q2. Your financial adviser indicates the likely terms of a Project Financing (below). Then he suggests that you consider adding Political Risk Insurance from MIGA at a cost of a $8 M upfront fee. Set up the cash flows to calculate the all-in financing cost, assuming you agree to add the MIGA PRI. Solve the all-in financing cost, expressing the answer in terms of an all-in interest rate before and after-tax. You may assume that interest expenses and fees are tax deductible @35 % in the year-incurred.
Loan Assumptions:
Loan Amount: $300 M
Tenor: 8 years
Interest Rate: 6%
Amortization: $50 M/year, beginning at the end of year 3
Advisory Fees: 1/ 2 %
Arrangement Fee: 1%
Annual Compliance Costs: $500 k