AGNICO EAGLE MINES Harvard Case Solution & Analysis

AGNICO EAGLE MINES

1. The value of the company could be found by the following adjustments:
   1. The Present value of the free Cash flows from operations plus the terminal value.
   2. Plus the present value of the tax shields on the tax loss carry forwards.
   3. Plus the tax shield on development expense carry forwards.
   4. Plus excess cash and marketable securities.
   5. Plus non-operating assets.
   6. Plus the market value of excess real estate (after-tax).
   7. Less after tax under-funding of the pension plan.
   8. Terminal value could be estimated by applying a perpetual growth of 4% and thus discounting it at 10.36% weighted average cost of capital in year 7.
   9. Net operating profit less adjusted tax plus amortization.
   10. Net operating profit = $ 142,604 plus amortization = $ 14,206.
   11. Terminal value is discounted at 6 years afterwards.

Although, the present value of operations plus the terminal value has been considered in the  previous answer but it is also important to consider the tax losses carry forward and tax shield available against the development expenses; it has a certain value as it allows the organization to reduce its tax payable in the future. The tax losses carry forward would be expected to last for six years and it would be discounted at before tax cost of debt because it is inevitable for the organization to earn an operating profit in order to make it eligible for taking advantage of its benefits.

After the exhaustion of tax benefits available on carry forward tax losses, consequently the tax benefits available on development expenses would be utilized by first converting the expense figure available at appendix A note # 8 from Canadian dollar to US Dollar and then dividing it over 8 years to arrive at a figure of $ 23,111 per year. Afterwards this figure should be discounted at before tax cost of ...................

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