Reference no: EM13725232
The Strik-it-Rich Gold Mining Company is contemplating expanding its operations. To do so it will need to purchase land that its geologists believe is rich in gold. Strik-it-Rich’s management believes that the expansion will allow it to mine and sell an additional 2,000 troy ounces of gold per year.
The expansion, including the cost of the land, will cost $2,500,000. The current price of gold bullion is $1,400 per ounce and one-year gold futures are trading at $1,484 = $1,400(1.06). Extraction costs are $1,050 per ounce. The firm’s cost of capital is 10%. At the current price of gold, the expansion appears profitable: NPV = ($1,400 – 1,050) x 2,000/.10 - $2,500,000 = $4,500,000.
Strik-it-Rich’s management is, however, concerned with the possibility that large sales of gold reserves by Russia and the United Kingdom will drive the price of gold down to $1,100 for the foreseeable future. On the other hand, management believes there is some possibility that the world will soon return to a gold reserve international monetary system. In the latter event, the price of gold would increase to at least $1,600 per ounce. The course of the future price of gold bullion should become clear within a year. Strik-it-Rich can postpone the expansion for a year by buying a purchase option on the land for $250,000.
What should Strike it rich management do? How NPV would be affected if the price of gold were to rise or fall significantly. Is buying a purchase option on the land a good idea? Why or why not?
Calculate the ksp for m2z
: The solubility of an unknown salt, M2Z, in a 0.0768 M CaZ solution is 5.6x10-10 mol/L. Calculate the Ksp for M2Z
|
Develop a proposal for internal
: Your job is to come up with an organizational plan to create a smooth merger of the two companies. From start to finish, develop a proposal for internal use only' that explains how the company should proceed.
|
Time to pay off the debt
: Joey realizes that he has charged too much on his credit card and has racked up $4,500 in debt. If he can pay $175 each month and the card charges 16 percent APR (compounded monthly), how long will it take him to pay off the debt?
|
Describe advantages of business-to-business marketing
: Briefly describe the major advantages of business-to-business marketing on the Internet, A company has four choices when it comes to developing brands. Describe what they are
|
Strik-it-rich gold mining company is contemplating expanding
: The Strik-it-Rich Gold Mining Company is contemplating expanding its operations. To do so it will need to purchase land that its geologists believe is rich in gold. Strik-it-Rich’s management believes that the expansion will allow it to mine and sell..
|
Career planning and management
: The most successful careers generally do not just happen-they are built through consideration and planning. You are likely in school because you want to build your future career success. And YOU are making that happen right now! Education is one v..
|
Describe the differences between dynamic and fixed pricing
: Describe the differences between dynamic and fixed pricing, Explain the factors involved in setting international pricing
|
Problems of operating system
: Problems about the operating system (parents, child, pipeline, word count...etc) I have need sample questions.
|
Define operational budget for krona community hospital
: As a member of the finance team, you have been asked to forecast the upcoming year's operational budget for Krona Community Hospital. Look below for last year's budget. After reviewing specific data, internal input, and external input from various..
|