The proposed price of the mine is reasonable. The verifiable reserves of ore are estimated at 12 tons.The research shows that you can easily produce at least one ton from this mine per year. The capital expenditure needed to get production started would be about US $30 million, with US $15 million outlay immediately after the deal was closed, and another US $15 million a year after. The working capital investment was estimated to be an additional $2.5 million a year starting in 2017. Besides capital costs, there were also gold-mining expenses including employee-related costs, internal and external gold transportation costs, blasting, drilling, and other mining-related costs. Additionally, there were expenses related waste disposal. The finance manager estimated that operating expenses would total US $25 per kg, and would increase at a rate of 5% per year.
What is the opportunity cost of capital and project cash flows?
( I dont know if this information is needed --
The finance manager figured he could get the bank to finance $12 million of the capital cost with a 10- year term loan at 14% annual interest rate, completely drawn down in 2017. The other $18 million plus $2.5 million working capital investment would come from cash in hand and equity injection from the parent firm. )