Engineers and financial analysts at Can-Do estimated that the cost savings through a combination of improved surface logistics and optimal location of new drift mines could result in approximately $1.5 million savings the first year and will increase with inflation over the next 20 years. We calculated the present value of future financial benefits under our assumption of 6% discount rate and …show more content…
These costs are expected to be offset by the potential savings. The underlying difference, which is $19,692,249 would be our bottom line purchase price, or namely walk-away point.
There are clearly underlying risks with a project at such scales. To test our assumptions, we completed a series of sensitivity tests. We first tested the risks associated with additional duration of short-term and long-term costs. We concluded that Can-Do’s exposure to duration risks is material. For each additional added to short-term costs, the budget of future claims can be exploded double. We would recommend that Can-Do’s engineers and financial analysts could conduct a thorough analysis on the technical aspects upon further agreement.
We further test our assumption on inflation rates as well as discount rates. We believe that our assumption of 6% discount rate and 5.54% of inflation could be reasonable over the next twenty years. Our sensitivity assumption suggested that within 1% range of both assumption respectively, the financial impact are not material compared to the total value of