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Essay / Research Paper Abstract
This 5-page paper covers a case study concerning Cemex's investment in developing a cement plant in Indonesia. Questions such as return on investment and weighted cost of capital are discussed.
Page Count:
5 pages (~225 words per page)
File: D0_MTindoceme.rtf
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Unformatted sample text from the term paper:
project would be a wholly-owned greenfield investment, with a capacity of 20 million metric tons a year. The following are questions about this case study. Given the information and cash
flow projections available, should the company make the investment? If no, under what conditions should the company make the investment in a new cement plant in Indonesia?
According to the companys pro-forma income statement, Cemex estimates it will start making a profit on Semen Indonesia (the name of the plant in
Sumatra) during the third year of operation out of a five-year projection schedule. In the two years thereafter, Cemex is projecting a 6% annual growth rate for this product.
Furthermore, Cemex is investing its own equity in the project - taking out a loan through Indonesia has a very high interest
rate (approximately 33% versus the 10% or so interest rate that Cemex would obtain in getting the loan and equity from entities outside of Indonesia. Still, the overall investment for
this plant is closed to $22 trillion dollars (Rp), with Cemex ponying up $11 trillion. The remainder will be financed with US and Indonesian debt, meaning a loan to cost
of about 50%. The problem with this scenario is that the overall costs (at least on the balance or cash flow
sheets) dont include the operation of the plant. Therefore, as the structure currently stands, the company should not make an investment in this plant in Indonesia. The equity raise is
simply not enough against the debt being bought (and uncertain debt at that - while the U.S. dollar and debt is probably pretty strong, the rupee might be another matter).
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