Calculation of npv and decision-making for the acme mining

Reference no: EM1312844

Calculation of NPV and Decision-making for the Acme Mining Company is considering digging a new copper mine. The mining equipment will cost $625 today, and in one year it will be known whether or not there is copper at the site and, therefore, whether the mine is a success of failure. The mining engineers estimate a 60% chance of success and the financial staff has calculated the PV at t =1 of a successful mine to be $1,000 and the PV of a failure at t = 1 to be $0. The financial staff uses a discount rate of 10%.

a. Calculate the NPV today using a traditional NPV analysis. Would you accept or reject the project?

b. Assume the financial staff has determined that if the project is a failure, the mining equipment could be sold for $400 at t=1. When you include this abandonment option, what is the NPV of the project? Would you accept or reject?

c. Based on your answers to a. and b, calculate the value of the option to abandon.

Reference no: EM1312844

Questions Cloud

Calculate the work done on the jet by the catapult : A fighter jet is launched from an aircraft carrier with the aid of its own engines & a steam-powered catapult. The thrust of its engines is 2.3 x 105 N. In being launched from rest it moves through a distance of 87 m & has a kinetic energy of 4.5 ..

Approximate normal with mean : The heights of young women are approximately normal with mean 65 inches and standard deviation 2.5 inches.

Compute the production cost and opportunity cost : What is the cost of producing additional car when 50 cars are being produced? What is the cost of producing additional care when 150 cars are being produced?

Find the initial project cash flow : Which of these should be included in the initial project cash flow related to net working capital and What amount should be used as the initial cash flow for this building project

Calculation of npv and decision-making for the acme mining : Calculation of NPV and Decision-making for the Acme Mining Company is considering digging a new copper mine

Structure and function of cellular organelles : Explain the structure and function of cellular organelles.There exist several examples of the eukaryotic cells. Algae, Fungi, Plants, and animals are all composed of the eukaryotic cells. Some algae and fungi are unicellular organisms.

Normal distribution with mean : The scores of college-bound senior men on the math part of the SAT followed a normal distribution with mean 527 and standard deviation 116.

Prepare journal entry to establish the petty cash fund : Prepare the journal entry to establish the petty cash fund and At the end of April, the fund had $28 in it. The petty cash custodian presented receipts

The largest speed at which cars can move : On a banked race track, the smallest circular path on which cars can move has a radius of 112m, while the largest has a radius of 165m, as the drawing illustrates. The height of the outer wall is 18m. The largest speed at which cars can move on thi..

User Account

All Pages