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Hick Mining is evaluating when to open a gold mine. The mine has 48,800 ounces of gold left that can be mined, and mining operations will produce 6,100 ounces per year. The required return on the gold mine is 11 percent, and it will cost $34.1 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 aftertaxcash flow of $1,410 per ounce. If the company waits one year, there is a 65 percent probability that the contract price will generate an after-tax cash flow of $1,610 per ounce and a 35 percent probability that the after-tax cash flow will be $1,310 per ounce.
What’s the NPV of opening the mine in one year?
Changes in sales cause changes in profits. Would the profit change associated with sales changes be larger or smaller if a firm increased its operating leverage? Explain your answer.
You’re trying to choose between two different investments, both of which have up-front costs of $100,000. Investment G returns $165,000 in 9 years. Investment H returns $285,000 in 16 years. Calculate the rate of return for each these investments.
Based on these results, does it appear that accurate voting results can be obtained by asking voters how they acted?
A borrower is purchasing a property for $300,000 and can choose between two possible loan alternatives. The first is a 90% loan for 20 years at 6.0% interest and the second is an 80% loan for 20 years at 5.0% interest. Assume the loan will be held to..
Dream Corp is comparing two different capital structures: an all equity plan (Plan A) and a lev ered plan (Plan B). Under Plan A the company would have 160,000 shares of stock outstanding. What is meant by business risk and financial risk? Explain th..
Consider the following information: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .17 .358 .458 .338 Good .43 .128 .108 .178 Poor .33 .018 .028 ?.062 Bust .07 ?.118 ?.258 ?.098 What is t..
What’s the value of a share of a firm that is promised to pay a constant dividend of $3 per share forever, starting from a year from now, assuming the required rate of return is 8%?
The Clothing Depot maintains a debt-equity ratio of .50 and follows a residual dividend policy. The firm needs $2,700 for new investments next year. The after-tax earnings this year are $1,700. What is the amount that the Clothing Depot will pay out ..
How does compound interest differ from simple interest? What happens to a future value if you increase (decrease) the interest rate? Explain why. What happens to a present value if you increase (decrease) the discount rate? Explain why. What do we me..
What is the interest-on-interest portion of a $1,000 par, 5-year (semi-annual payments), 7% coupon bond’s $ return if the reinvestment rate is 4.5%?
Firms that achieve higher growth rates without seeking external financing
Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 20% for two years and then at 3% thereafter. If the required return for Deployment Specialists is 10.0%, what is the intrinsic value of Deployment Specialists st..
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