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Part A (5 marks) BHP is considering buying in a new nickel mine which is forecasted to start earning $30,000,000 of revenue in the 3rd year of operation. Production of nickel is expected to increase by 10% p.a. after having a consequent impact on revenue. Operating costs are 25% of annual revenue. The mine is kept for 5 years of production, after which the nickel is exhausted and expected to fetch a sale price of only $5,000,000 in the final year of production. Setting up the mine requires $40mil today and $20mil in the first year. 70% of capital is financed through debt which has a cost of 8% and shareholders require a 6% premium on what creditors earn. Calculate the NPV and IRR of this project. (0.5 marks for correct NPV and IRR, 4 marks for correct cashflows) Part B (4 marks) In an independent project to the nickel mine, BHP is considering spending $800,000 now to purchase drones that deliver mining samples to it's testing laboratory. This is anticipated to save $100,000 in courier costs each quarter for 2 years, diminishing by 5% each quarter. The WACC for this project is the same as what is required to setup the new nickel mine. Calculate the NPV and IRR of this project. (0.5 marks for correct NPV and IRR, 3 marks for correct cashflows) Part (1 mark) What would be your recommendation regarding the two projects that you have valued? Justify your

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