Mozal Case Essay

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| The Mozal Project | | | June 1997 Summary Statement of problem AnalysesValuation The Cash Waterfall/Cascade method is utilized to forecast the residual equity cash flows of the sponsors. The Mozal Project itself has a rapidly changing leverage and this method is very suitable for this condition. The FCFE’s are discounted by the EHV Country Risk Rating Model because this rating model takes the country risks of Mozambique into account and incorporates better the risk profile. The normal equity discount rate for the Mozal Project is estimated after defining the FCFE and calculating the implied equity discount rate. The implied equity discount rate itself is obtained by using averages of three US-based integrated aluminum producers asset and assuming the beta. Furthermore this normal equity discount rate is adjusted by the country risk according to the EHV Method. Finally there is just a small adjustment incorporated from the calculated country spread due to the fact that there is a lot of risks which are mitigated by the contractual structure of the project. Contractual structure and risk Recommendations Despite many aspects that were still undetermined, and as being the biggest investment of IFC, IFC should participate in the project because of the project’s significant economic and developmental benefits. The impact to the country is enormous. The project is consistent with the IFC’s mission of promoting private sector investments in developing countries. Moreover, the involvement of the IFC into the project will reducesome of the risks. The IFC is willing to make loans with longer maturities, which provides better matching for long-lived project assets, and it is willing to lend on a subordinates basis, thereby exposing itself to great losses. In addition, The IFC heavely supports the projects that gives economic impacts on society or
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