|Southport Minerals, Inc.
Case Study Solution
The Southport Minerals, Inc. case study solution contains 2 files; 1 word and 1 excel. The word file is
2,265 words, below is the table of contents. The excel file has 5 tabs with all work in the cells which
provides the detail for the financial analysis, below is a list of the tabs in the excel file.
Southport Minerals Table of Contents
--Introduction to the Southport Minerals case study
--1a. Which method of analyzing the value of the Firstburg investment proposal to Southport Minerals is
--1b. Why are the other methods less reasonable?
--2a. How did the specific financing choice available to Southport Minerals alter both the risk and return
potential of the Firstburg investment proposal?
--2b. How effective was it in dealing with the project’s risk?
--3. If you were trying to negotiate an improvement in the terms of the Firstberg financing proposals, in
which of the following areas would you concentrate your efforts, and why would you concentrate them
--(i) Interest Rates
--(ii) Debt Maturities
--(iii) Allowable Dividends There is a covenant in the deal that states, “Under various loan covenants, no
dividends could be paid until December 31, 1974, and debt prepayments in an amount equal to the
proposed dividend had to be made before the dividend could be paid.” This covenant means that SI will
not be in a bind to pay dividends. Dividends will not be an issue for SI, but maybe an issue for the
parent company Southport Minerals if production is not as planned (the dividends form SI are being
paid to Southport Minerals). Based on the analysis, $202.4 million will be paid. I would not recommend
negotiating any changes.
--(iv) Price Terms
--4. Should Southport Minerals make the investment?
Southport Minerals Financial Analysis in Excel
--Cost of Capital
--Capital Structure if 100% Debt
--Price of Refined Copper
--Cost of Capital Analysis with no International Debt
--Net Present Value of Discounted Cash Flows (Valuation)
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