To be exact, as per the investment analysis, the railway project is estimated to cost (80,000,000 + 25,000,000 + 1,000,000) = 106,000,000. However, if the Federal Government accepts the company’s petition for subsidy, the share of the project cost to the Kettle mining company would be (106,000,000*0.5) = $ 53,000,000. The subsidy would help reduce the burden of the project for the company. Therefore, Dr. Rousseau should consider going public to raise the amount required for investment. Secondly, if, as is recommended, the Kettle mining Company decides to go public, the company’s capital structure must change to reflect the debt borrowed from the public through the issuance of an IPO. In that case, Dr. Rousseau, who seems to oppose the IPO option must make sacrifices and relinquish a portion of the company’s control to the new shareholders. The IPO is the best option since it provides a long-term source of funds, which is appropriate for investments such as railroad development. It is also important to consider the fact that a loan from a bank has been negotiated at a cost of 11%. This source of finance will increase the company’s weighted cost of capital to 5.8%. Comparatively, the IPO option is better than the loan option for the reason that the loan restricts the company’s decision-making and must be called back on maturity, while the IPO can only be called back when the company goes under receivership (CMA Canada, n.d, p. 1-3).
Third, currently, the company heavily relies on road and air transportation media. The cost of the road transportation during winter totals to $ 2 million and that of air transportation during the spring and summer totals to $ 3.5 million. If the project is undertaken, these costs will be avoided. In addition, the train is expected to provide transport and freight services to residents of Carlsbad and Whitehorse, which is expected to generate revenues.