Find the value of the mine

Assignment Help Financial Management

Reference no: EM131902370

A copper mine has 100 pounds of raw material that we can extract one year from now. The extraction costs are $0.30 per pound which we would incur one year from now. The one-year forward price of copper is $0.35 per pound. Our analysts estimate that one year from now, the copper price will be either $0.60/pound in a good economy or $0.20/pound in a bad economy. The risk-free rate is 4%. If we don't extract the copper one year from today, Christian Slater will set off a nuclear bomb in the mine shaft and we will lose access to the mine forever.

a. Suppose we must decide today if we will extract the copper in one year’s time. Find the value of the mine.

b. Suppose we can wait until we know if the economy is good or bad (and thus, we will know the price of copper) before deciding whether or not to extract the copper. Find the value of the mine.

Reference no: EM131902370

Questions Cloud

How the organizations derive value from the services : BI tools can enable different organizations, possibly under the same parent organization, or different companies, to provide services to each other.

How is information systems transforming business : How is information systems transforming business, and what is their relationship to globalization? Describe how informationsystem has changed the way business.

What are the implications of globalization : If you were setting up the Web site foryour own business what people organization,and technology issues might you encounter?

What is the argument the main point of the article : What is the argument, 'the main point,' of the article? What are your responses and/or reactions to what you learned from reading the article?

Find the value of the mine : Suppose we must decide today if we will extract the copper in one year’s time. Find the value of the mine.

What are the four contingencies of reinforcement : Differentiate between the ethical and legal components of corporate social responsibility. What are the four contingencies of reinforcement?

Specify the levels of demand for each processing alternative : Zodiac Furniture is considering the production of a new line of metal office chairs. The chairs can be produced in-house using either process A or process B.

Home theater surround sound? system : Camerin wants a new big screen TV and home theater surround sound? system, Assuming Camerin accepts the? store's financing, his monthly payment will be ??$

Sausage system with installed cost : Dog Up! Franks is looking at a new sausage system with an installed cost of $512068. what is the NPV of this project?

User Account

All Pages