Discuss on opening the mine now or one year later using npv

Reference no: EM1311651

Discuss on opening the mine now or one year later using NPV analysis.

You own an unused gold mine that will cost $100,000 to reopen. If you do open the mine, you expect to extract 1,000 ounces of gold per year, for the next 3 years. After those 3 years the deposit will be exhausted. An ounce of gold is currently selling for $500. For each of the next 3 years, this price is equally likely to rise or fall by $50 per year from its level at the start of that year. The extraction cost is estimated to be around $460 an ounce, and this cost will not change over the next 3 years.

The demand for gold has increased tremendously in the recent years and there is a good chance that this demand will continue in the future as well. You are therefore puzzled as to whether to open the mine now or in one year in the hope that prices will move further up.

Assume that the opportunity cost of the project is 10%.

What is the NPV of opening the mine now? What is the NPV of opening the mine one year later? Should you wait?

Reference no: EM1311651

Questions Cloud

Growth rates in follower nations : Growth rates in follower nations such as South Korea also Hong Kong averaged about 10 percent every year.

Daily budget constraint and calculating reservations wage : Shelly's preferences for consumption and leisure can be expressed as. This utility function implies that shelly's marginal utility of leisure is C-200 and her marginal utility of consumption is L-80.

How much more money can the publisher put : how much more money can the publisher put into advertising and still break even - Calculation of money, the publisher can put into advertising and still break even

What is the force the right support exerts on beam : Now the gymnast (not holding any additional mass) walks directly above right support. What is the force the left support exerts on beam.

Discuss on opening the mine now or one year later using npv : Discuss on opening the mine now or one year later using NPV analysis and What is the NPV of opening the mine now

Demand for clothing also footwear : Elucidate how would you express the demand for clothing also footwear. Risks involved holds the most risk to the subcontractor.

The flow rate of sludge and thickened sludge : Find the flow rate of sludge and thickened sludge, salt concentration, water flow rate and pumping rate of a reservoir.

Differences between distribution of performance of stock : Using part(a), explain to investor differences between distribution of performance figures for the 2 kinds of stock funds.

Purpose of production report in process costing : Explain the Purpose of Production report in Process Costing and Determine the main function of the process costing production cost report?

User Account

All Pages