You are thinking about investing in a mine that will produce $8,000 worth of ore in the first year. As the ore closest to the surface is removed it will become more difficult to extract the ore. Therefore, the value of the ore that you mine will decline at a rate of 7% per year forever. If the appropriate interest rate is 3%, then the value of this mining operation is closest to: OA. $80,000 OB. $200,000 OC. $500,000 OD. This problem cannot be solved.

You are thinking about investing in a mine that will produce $8,000 worth of ore in the first year. As the ore closest to the surface is removed it will become more difficult to extract the ore. Therefore, the value of the ore that you mine will decline at a rate of 7% per year forever. If the appropriate interest rate is 3%, then the value of this mining operation is closest to: OA. $80,000 OB. $200,000 OC. $500,000 OD. This problem cannot be solved.

Name: K-You are thinking about investing in a mine that will produce $8,000
Uploaded: 2024-03-20T06:50:59.000Z
Channel: Bartleby
Description: K-You are thinking about investing in a mine that will produce $8,000 worth of ore in the first year. As the ore closest tothe surface is removed it will become more difficult to extract the ore. Therefore, the value of the ore that you minewill dec

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 20P

See similar textbooks

Similar questions

Question 1) Imagine you are considering buying a gold deposit. It will cost $1 million per year to construct a mine so that gold can be extracted. The construction period lasts 3 years. In the fourth year, production starts. Each year the mine operates it will yield a net return of $500,000 (total revenue minus total cost). What will you pay for the gold deposit if: (a) Interest rates are 10 percent and gold can be extracted for 10 years? (b) Interest rates are 5 percent and gold can be extracted for 6 years?
Salt Lake Potash is considering a project with the following cash flows. An initial investment of $1.025bn is required for the project. The discount rate is 9%. The company wants to calculate how long it would take investors to recover their initial investment. The company does not want to ignore the effects of time value of money and the discount rate. Year O CF ($mn) -$1,025 1.83 years 2.26 years What is your best estimate of the time to recovery? $159.79mn 1 2 $650 $450 19.9% 3 $250 4 $50
Parkville Mining is considering opening a new self sustaining gold mine at a cost today of $1,000,000. Beginning one year from today, this mine will produce $100,000 worth of gold every year for 10 years. After that, the value of gold produced will be $50,000 forever. If Parkville Mining 's appropriate interest rate is 8%, then the NPV of this gold mine is closest to: Group of answer choices $2,592,016 None of these alternatives $921,008 -$39,496 $1,296,008
K You have been offered a unique investment opportunity. If you invest $8,300 today, you will receive $415 one year from now, $1,245 two years from now, and $0,300 ton years from now a. What is the NPV of the opportunity if the cost of capital is 6.4% per year? Should you take the opportunity b. What is the NPV of the opportunity if the cost of capital is 2.4% per year? Should you take it now? a. What is the NPV of the opportunity if the cost of capital is 6.4% per year? If the cost of capital is 6.4% per year, the NPV is $ (Round to the nearest cent)
1 Abusiness is considering the option of buying a plece of equipment that has a life of 5 years. The original cost of the equipment is RMS50,000 and the interest rate is 10%, It is expected that the net cash flow is RM15,000 annually and the salvage value is RMS,000. Required a. What is the NPV? b. Recommend whether the investment is feasible.
A mining company plans to mine a beach for rutile. To do so will cost $14 million up front and then produce cash flows of $7 million per year for five years. At the end of the sixth year the company will incur shut-down and clean-up costs of $6 million. If the cost of capital is 12%, then what is the MIRR for this project? O A. 21.53% В. 13.7% C. 17.62% D. 19.57%
A project requires you to invest $10,000 now, will generate annual revenues of $1500 for 10 years and will have a salvage value of $800 at the end of year 10. If your MARR is %10 per year, is this project acceptable? Select one: a. Yes, and its PW=$525.3 X b. No, and its PW =-$1474.7. c. Yes, and its PW=$1525.3 d. No, and its PW =-$474.7
4. You have an opportunity to purchase a piece of vacant land for $30,000 cash. If you plan to hold it for 15 years and then sell it at a profit. During this period, you would have to pay annual property taxes of $600 and have no income from the property. Assuming that you would want a 10% rate of return from the investment, a) Draw a cashflow diagram. b) What net price would you have to sell it in the next 15 years?
PQR, Inc., is considering investing $160,000 in a machine that may last 4 years with no residual value. The new machine will generate annual operating income of $60,000 per year for 4 years. What is the Simple rate of return? OA. 12.5% B. 10.5% O C. 14% OD. 15.66%
Your boss is considering investing in a new process. The initial cost of the process is $100,000. The anticipated cash flows of the 8 year project are shown below. If your company borrows money at an interest rate of 6% and the MARR of the project is 15%, determine the rate of return. Is this a good investment? (RoR = 19%) Year 1 2 3 4 7 8 Cash Flow -100,000 36,000 35,000 34,000 33,000 32,000 -25,000 35,000 -25,000
ist 2 You are considering opening a new plant. The pland will cost $95.1 milion up front and will take one year to build After that it is expected to produce profits of $30.7 million at the end of every year of KE production (starting two years from now). The cash fows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 7.1%. Should you make the investment? Circulate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged CID The NPV of the project will be on (Round to one decimal pla
5. Option to Wait Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $435,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $2.8 million. The cost of the machine will decline by $215,000 per year until it reaches $2.155 million, where it will remain. If your required return is 9 percent, should you purchase the machine? If so, when should you purchase it?