Question
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(5) A mining company is evaluating when to open a gold mine. The mine has 48,000...
- (5) A mining company is evaluating when to open a gold mine. The mine has 48,000 ounces of gold left and mining operations can generate 6000 ounces/year.
- The required rate of return is 12%
- It will cost $34 million to open the mine.
When the company opens the mine, it will sign a contract guaranteeing the price of gold for the remaining life of the mine.
If the mine is opened today, each ounce of gold will generate an after tax cash flow of $1400/ounce.
If the company waits one year, there is a 60% chance of the after tax cash flow being $1600/ounce, and a 40% chance of being $1300
What is the value to wait?
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Expert Solution
SEE THE IMAGE. ANY DOUBTS,
FEEL FREE TO ASK. THUMBS UP PLEASE
jeff jeffy answered 2 years agoRelated Solutions
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gold would be completely mined. Dan has taken an estimate of the
gold deposits to Alma Garrett, the company’s financial officer.
Alma has been asked by Seth to perform an analysis of the new...
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