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