#### Question Details

##### [solution] » Hickock Mining is evaluating when to open a gold mine. The mine

Brief item decscription

Step-by-step solution file

Item details:

Hickock Mining is evaluating when to open a gold mine. The mine
More:

 Hickock Mining is evaluating when to open a gold mine. The mine has 41,600 ounces of gold left that can be mined, and mining operations will produce 5,200 ounces per year. The required return on the gold mine is 12 percent, and it will cost \$33.2 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 \$1,320 per ounce. If the company waits one year, there is a 60 percent probability that the contract price will generate an aftertax cash flow of \$1,520 per ounce and a 40 percent probability that the aftertax cash flow will be \$1,220 per ounce.

 What is the value of the option to wait? (Enter your answer in dollars, not millions of dollars, e.g.. 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Expected price after one year

Today price

Difference

per year difference

PVIF at 12%

Value of option to wait 1400

1320

80 per ounce

416000

4.9676397668

\$

2,066,538 8 years

STATUS
QUALITY
Approved

This question was answered on: Feb 21, 2020

Solution~00065702472.zip (18.37 KB)