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  #21  
Old 08-05-2017, 09:17 AM
gcact gcact is offline
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Once your inflation is calculated you should have an idea of what the baseline is for your company's savings from acquiring the mine.

The sensitivity testing will move your savings amount up and down. You use the information from those sensitivity tests to justify moving your walk-away point up or down based on how likely you perceive each sensitivity will occur.

There will not be any actual probabilities given for each sensitivity so you will just have to make an educated guess on which ones are most likely and justify the movement on the walk-away point.

When in doubt, just pick something and defend it as best you can. There is not a right answer but there is a correct way to present your answer, and that is what they're looking for.
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  #22  
Old 08-05-2017, 09:33 AM
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Quote:
Originally Posted by gcact View Post
Once your inflation is calculated you should have an idea of what the baseline is for your company's savings from acquiring the mine.

The sensitivity testing will move your savings amount up and down. You use the information from those sensitivity tests to justify moving your walk-away point up or down based on how likely you perceive each sensitivity will occur.

There will not be any actual probabilities given for each sensitivity so you will just have to make an educated guess on which ones are most likely and justify the movement on the walk-away point.

When in doubt, just pick something and defend it as best you can. There is not a right answer but there is a correct way to present your answer, and that is what they're looking for.
thanks for the quick reply!
1.does it means that the calculated inflation is used to calculate the saving of Can-Do?
2.does Can-do's saving amount only based on inflation and discount rate and the salvage value from MMLC's costs projection?
3.sensitivity test may move the addtional costs value, in addition to move the walk away value, is that correct?

Many thanks
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  #23  
Old 08-05-2017, 10:05 AM
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The sensitivity test is basically test on the additional costs, should I also test the same things on saving amount simultaneously?
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  #24  
Old 08-05-2017, 10:11 AM
gcact gcact is offline
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Your sensitivity tests should be in terms of savings.
Example: inflation goes up --> savings goes down

Then you say, okay, inflation going up is reasonable, I'm going to lower my walk-away point because I don't want to lose money on this deal if inflation is higher than expected for the next 10 years.
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  #25  
Old 08-05-2017, 10:41 AM
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Quote:
Originally Posted by gcact View Post
Your sensitivity tests should be in terms of savings.
Example: inflation goes up --> savings goes down

Then you say, okay, inflation going up is reasonable, I'm going to lower my walk-away point because I don't want to lose money on this deal if inflation is higher than expected for the next 10 years.
Thanks for the quick reply.
I just follow the request of the memorandum, they require three sensitivity test respective on duration, inflation and discount rate. But I think all sensitivity tests are in terms of additional costs. The sensitivity test on saving part is also necessary?
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  #26  
Old 08-05-2017, 12:22 PM
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additional costs would drive your savings down, or no?
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  #27  
Old 08-05-2017, 08:15 PM
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additional costs would drive your savings down, or no?
Oh, that saving.
I think I have misunderstood the saving.
Many thanks!
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  #28  
Old 08-06-2017, 04:44 AM
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I notice that some of the addtional costs are under US-FAS. It is irrelavant to calculation the addtional costs, right?
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  #29  
Old 08-06-2017, 09:10 AM
CrispyCobb CrispyCobb is offline
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I notice that some of the addtional costs are under US-FAS. It is irrelavant to calculation the addtional costs, right?
The assignment notes:

"Like Can-Do, MMCL is a Canadian-based subsidiary of a U.S.-based holding company. As such, it has to report to the parent in accordance with the US Financial Accounting Standards (FAS). MMCL’s projections are reported on both an FAS and on a management basis. The projections were produced for separate purposes at MMCL. We suspect the management projections are more complete but you should review all to ensure your analysis is complete."
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