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Category > Business & Finance Posted 31 Jul 2017 My Price 11.00

You own an unused gold mine

You own an unused gold mine that will cost $100,000 to reopen. If you open the mine, you expect to be able to extract 1,000 ounces of gold a year for each of three years. After that, the deposit will be exhausted. The gold price is currently $500 an ounce, and each year the price is equally likely to rise or fall by $50 from its level at the start of the year. The extraction cost is $460 an ounce and the discount rate is 10 percent.
a. Should you open the mine now or delay one year in the hope of a rise in the gold price?
b. What difference would it make to your decision if you could costlessly (but irreversibly) shut down the mine at any stage?

 

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Status NEW Posted 31 Jul 2017 04:07 PM My Price 11.00

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