Purchased the mining rights for gold mine

Assignment Help Financial Management

Reference no: EM131875430

The Black Mountain Mining Company has just purchased the mining rights for a gold mine for $150 million. The proven reserves are 180,000 ounces that BMMC estimates that it can produce in three equal installments over the coming three-year period. The current price of gold is $1,240 per ounce and BMMC expects the price to increase by 6.4% per year for three years. It estimates the total cost of producing the gold at $280 per ounce in year one and expects that to grow by 3.6% per year for the following two years. The required rate of return on the mine is 20% per year. Assume no taxes.

1. BMMC uses its estimates for production, price, and cost and calculates the NPV of the project. How much is that NPV?

2. After they come up with the NPV estimate, one of the financial managers realizes that an avoidable mistake could have been made in the estimates they came up with. Identify the most likely source of the mistake.

3. Recalculate the NPV after correcting the mistake in part b above.

Reference no: EM131875430

Questions Cloud

How do you think the increases in the budget deficits : How do you think the increases in the budget deficits and the national debt will affect the economy in the future?

What is the stock intrinsic value : Assuming BBB’s cost of equity is 19.5%, what is the stock’s intrinsic value?

Estimate the cost of capital for venice industrial : You are an outside analyst attempting to estimate the cost of capital for Venice Industrial.

What is the meaning of renaissance humanism : Why does the author suggest that the Renaissance was a movement rather than a period? What is the significance of that distinction?

Purchased the mining rights for gold mine : The Black Mountain Mining Company has just purchased the mining rights for a gold mine for $150 million.

What is the amount of Mainstream MACRS deduction : Mainstream sold all of this equipment on June 30, 2015. What is the amount of Mainstream's MACRS deduction for 2015

How much is the effect on company total net operating income : How much is the "effect" (incremental net operating income) on the company's total net operating income through accepting the special order

Calculate the present value of a stream of cash flows : Calculate the present value of a stream of cash flows based on a discount rate of 8%. Annual cash flow is as follows.

Record the entry to accrue dividends : ABC Corp declared dividends of $1.50 per share on January 1, 2015. Record the entry to accrue dividends. Record the entry to pay the dividends

User Account

All Pages