China Gold Mining produces and markets gold. The following are selected numbers from the…

China Gold Mining produces and markets gold. The following are selected numbers from the financial statements for 2018 and 2019 (in millions).






(Less) Operating Expenses



(Less) Depreciation






(Less) Interest Expenses



(Less) Taxes



= Net Income



Working Capital



Total Debt

$5.45 billion

$5.00 billion

The firm had capital expenditures of $950 million in 2018 and $1 billion in 2019. The working capital in 2017 was $190 million, and the total debt outstanding in 2017 was $5.75 billion. There were 305 million shares outstanding, trading at $21 per share.

A. Estimate the cash flows to equity in 2018 and 2019. (6 points)

B. Assuming that net income and the expenditure increase 4%, and that working capital remains unchanged in 2020, estimate the projected cash flows to equity in 2020. (The firm is assumed to be at its optimal financial leverage.) (3 points)

C. How would your answer in (B) change if the firm planned to reduce its debt ratio to zero in 2020 by financing 100% of its capital expenditures (net of depreciation) with new equity issues? (3 points)

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