Your investment banking firm has been contracted by Fortescue


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Your investment banking firm has been contracted by Fortescue Metals Group Limited (ASX Code: FMG) to provide an independent assessment of their current financial management policy selection and decision-making, and a recommendation regarding the optimal capital budget for the company for the 2014 financial year and incorporation of this capital budget decision-making within the existing financial management policies of Fortescue Metals Group Limited. The focus of this task should be on using information sources, such as the 2013 Annual Report, prior year annual reports and other relevant documentation, to identify and explain the financial management policies adopted by Fortescue Metals Group Limited, and to demonstrate the nature of any association between the various policies adopted by the company and the accounting and share performance outcomes for Fortescue Metals Group Limited. The final component of your project should be an investment evaluation application and the provision of strategic advice regarding the implementation and funding of the recommended capital budget in the context of the current financial management policy settings of Fortescue Metals Group Limited. Fortescue Metals Group Limited is a leading iron ore production and exploration company which operates in the Pilbara region of northern Western Australia. The company is the fourth-largest listed resources company in Australia, behind BHP Billiton Limited, Rio Tinto Limited and Woodside Petroleum Limited, and the largest pure-play iron ore mining company listed in Australia. The company currently has two primary production sites in operation, namely the Chichester Hub located in the Chichester Ranges in the Pilbara region comprising the Cloudbreak and Christmas Creek mining projects, and the Solomon Hub, which is located 120 kilometres west of the Chichester Hub and comprises the Firetail and Kings Valley mines. The company’s current operational objective is to achieve iron ore production of 155 million tonnes per annum (Mtpa), and it has undertaken an aggressive expansion program in the last decade in pursuit of this objective. The iron ore produced by the company’s mining operations is transported to their port facilities at Port Hedland and is shipped for spot market or futures contract trading in a number of overseas locations, but predominantly China. The company has been an outspoken opponent again the Minerals Resource Rent Tax (MRRT) and Carbon Pollution Reduction Scheme (Carbon Tax) policies introduced by the former Labour Federal Government, and funded their own advertising campaign opposing the introduction of the MRRT legislation. Fortescue Metals Group Limited’s largest shareholder is Mr. Andrew Forrest with a 32.78% ownership interest in the company’s ordinary share capital. Andrew Forrest was also the founder and former Chief Executive Officer (CEO) of the company, and is currently the Executive Chairperson of the Board of Directors. The table below provides a summary of financial and structural information for Fortescue Metals Group Limited for their recent June 30th year-ends (All figures, 2 except for per-share, issued share capital and percentage statistics are expressed in A$Million): 2010 2011 2012 2013 Issued share capital (no.) 3107.1970 3,113.4981 3,113.7981 3,118.7981 Market capitalisation 12801.6520 19770.7130 15257.6110 9481.1462 Share price ($) 4.1200 6.3500 4.9000 3.0400 Price/earning ratio (times) 18.7785 20.7652 9.9735 5.0281 Earnings per share ($) 0.2194 0.3058 0.4913 0.6046 Dividends per share ($) 0.0000 0.0700 0.0800 0.1000 Dividend payout ratio (%) 0.0000 22.8908 16.2833 16.5399 Return on equity (%) 39.3418 42.0061 41.4407 33.0119 Total revenue 3840.5960 5114.1475 6590.1285 8754.7170 Earnings before interest and tax 1331.6684 2359.8436 2563.0458 3032.8841 Profit before tax 891.3235 1999.3621 2067.5105 2436.6578 Net profit after tax before abnormals 893.4002 1708.3546 1376.7049 1660.3774 Net profit after …

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