What is the value of the option to wait

Assignment Help Financial Management

Reference no: EM131020086

Hickock Mining is evaluating when to open a gold mine. The mine has 39,000 ounces of gold left that can be mined, and mining operations will produce 6,500 ounces per year. The required return on the gold mine is 10 percent, and it will cost $34.5 million to open the mine. When the mine is opened, the company will sign a contract that will guarantee the price of gold for the remaining life of the mine. If the mine is opened today, each ounce of gold will generate an aftertax cash flow of $1,450 per ounce. If the company waits one year, there is a 55 percent probability that the contract price will generate an aftertax cash flow of $1,650 per ounce and a 45 percent probability that the aftertax cash flow will be $1,350 per ounce.

What is the value of the option to wait? (Don't round intermediate calculations)

Reference no: EM131020086

Questions Cloud

Yield to maturity-duration of this bond : A bond currently sells for $1,000, which gives it a yield to maturity of 5%. Suppose that if the yield increases by 20 basis points, the price of the bond falls to $975. What is the duration of this bond?

The value at risk approach : The Value at Risk approach: Discuss whether the following statement is true or false: A multi-index model will predict returns better than a single-index model

Equity-performance based compensation for managers : As stockholders, we can not rely on the managers of our firm to always appropriately manage the company for us. Which of the following is not a mechanism for helping ensure that the managers of our firm more appropriately manage the company for us. e..

Which gives it a yield to maturity : A bond currently sells for $1,000, which gives it a yield to maturity of 5%. Suppose that if the yield increases by 20 basis points, the price of the bond falls to $975. What is the duration of this bond?

What is the value of the option to wait : Hickock Mining is evaluating when to open a gold mine. The mine has 39,000 ounces of gold left that can be mined, and mining operations will produce 6,500 ounces per year. The required return on the gold mine is 10 percent, and it will cost $34.5 mil..

Credit card to relocate for his first job : A new employee charged $5140 on his credit card to relocate for his first job. After noticing that the interest rate for his balance was 24% compounded monthly, he stopped charging on that account. What monthly payment must he make to pay off the acc..

Difference between individual and organizational ethics : What is the difference between individual and organizational ethics? Why is it important that we understand that difference in a business environment?

Simple interest on its investment accounts : First Simple Bank pays 9.3 percent simple interest on its investment accounts. First Complex Bank pays interest on its accounts compounded annually. What rate should the bank set if it wants to match First Simple Bank over an investment horizon of 13..

The present value of five years future salary : You are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff is able to return to work. The jury has already dec..

User Account

All Pages