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inysia [295]
3 years ago
10

Hickock Mining is evaluating when to open a gold mine. The mine has 39,200 ounces of gold left that can be mined, and mining ope

rations will produce 5,600 ounces per year. The required return on the gold mine is 10 percent, and it will cost $33.6 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 $1,360 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 $1,560 per ounce and a 45 percent probability that the aftertax cash flow will be $1,260 per ounce. What is the value of the option to wait?
Business
1 answer:
STatiana [176]3 years ago
8 0

Answer:

Value of the option to wait = $1,294,840

Explanation:

Gold = 39,200 ounces

Production per Year = 5,600 ounces

Total production in Years = 39,200/5,600=  7  

Required Rate Return = 10%

Initial cost =$33,600,000

  • If the mine has been started today

After tax cash flow in a year = $1,360* 5,600 =   $7,616,000

Net Present Value = - $33,600,000 + $7,616,000*PVIFA(10%, 7 Years)

= - $33,600,000 + $7,616,000*4.8684 = $3,477,73

  • If the mine will be started next year

Expected after tax cash flow = $1,560*55%+$1,260*45% =  $1,425/OUNCE

After tax cash flow in a year = $1,425 * 5,600 = $7,980,000  

Net Present Value after 1 Year= - $33,600,000 + $7,980,000*PVIFA(10%, 7 Years)

= - $33,600,000 + $7,980,000*4.8684 = $5,249,832

NPV  =    $5,249,832 / 1.10  =  $4,772.575

Option to wait = $4,772,575 - $3,477,734 =  $1,294,840

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It costs a company $14 of variable costs and $6 of fixed costs to produce product Z200 that sells for $30. A foreign buyer offer
Andrej [43]

Answer:

the net income would be decreased by $3,000

Explanation:

The computation of the net income is shown below;

Total cost is

= $14 + $5

= $19 per unit

And, the Selling price is $18 per unit

Now

Income = Revenue - Cost

= $18 - $19

= -1 per unit

And, finally

Total Income = 3000 units × (-1)

= -$3000

Hence, the net income would be decreased by $3,000

7 0
2 years ago
The Atlantic Co. is an all-equity company with sales of $21,600, costs of $14,780, depreciation of $2,000, and taxes of $1,012.
lora16 [44]

Answer:

$5174.75

Explanation:

(21600-14780-2000)*1.22*0.88=5174.75

3 0
3 years ago
Randall is single and has total income from all sources (taxable and nontaxable) of $83,000. His taxable income is $62,000. Rand
bekas [8.4K]

Answer:

effective tax rate = 13.54

Explanation:

given data

total income = $83,000

taxable income = $62,000

tax liability = $11,239

to find out

effective tax rate

solution

we get here effective tax rate that is express as

effective tax rate = \frac{total\ tax}{total\ income}    .................1

put here value and we get

effective tax rate = \frac{11239}{83000}  

effective tax rate = 13.54

6 0
3 years ago
Question 2<br> A style of writing in which the main point is stated early in the message.
svetoff [14.1K]

Answer:

this could be a hard lead if this has to do with writing an article of some sort Explanation:

5 0
2 years ago
Exercise 8-07 At December 31, 2019, Pharoah Company Company had a credit balance of $18,100 in Allowance for Doubtful Accounts.
Alja [10]

Answer:

Entries are given below

Explanation:

DATA:

Opening Balance in the allowance for doubtful debt = $18,100

During 2020 Pharoah company wrote off accounts totaling 12,900

Entry                                                       DEBIT        CREDIT

Allowance for Doubtful Accounts $11,800  

Accounts Receivable                                               $11,800

At December 31, 2020, an aging schedule indicated that the balance in Allowance for Doubtful Accounts should be $23,700

Entry                                                       DEBIT        CREDIT

Bad debt expense                                $17,400

Allowance for doubtful debt                                    $17,400

           

Working

Balance before adjustment = $18,100 - $11,800

Balance before adjustment = $6,300

After Aging schedule indication

Adjustment  = $23,700 - 6,300

Adjustment = $17,400

3 0
3 years ago
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