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In Chrysos, while estimating the value of mining and shipping business unit, the 1,200Mn $ investment in equipment is not reduced while computing the free cash flow.
However, in Chikepe, the value of 98.2 MN $ is adjusted while arriving at the PV of cash flows of Foshoro Co.
The question seems to state that a investment is required in both these cases but the treatment is different in both these cases. Could you please help me understand what is different in these two questions with respect to investment and why they are being treated differently while computing the PV of cash flows
In Chrysos the investment is a one-off as part of the restructuring, and the question asks for the value after the restructuring – so it is based on the future free cash flows after the restructuring.
In Chikepe there is additional investment in future years and so the future free cash flows are affected by the future investment.
Thanks John, for your response. Sorry, but am a little confused here.
Given that the initial investment in Chrysos is part of the restructuring scheme, which would have not been incurred, if the scheme was not opted for and also that the future cash flows also grow by 4% after this investment, would it not be appropriate to account for this investment as well as part of cash outflow, while estimating the free cash flow.
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