Find the price of molybdenum

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Question - AMAX Corporation is a mining company that focuses on extraction of molybdenum-a crucial additive in the production of steel. AMAX is considering expanding its molybdenum capacity and is deciding whether to pursue an investment to expand capacity at its Climax mine would cost $100M today (year 0), $50M next year (year 1) and would increase capacity in years 3 to 9 by 15M pounds1 (note there is no cash flow in year 2). The variable cost of extracting molybdenum at this location would be $4/pound. If the discount rate is 16%, find the price of molybdenum above which it makes sense to do the investment, i.e. find the price at which the NPV is zero for each scenario.

Reference no: EM133027767

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