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Alex
3 years ago
5

You are thinking about investing in a mine that will produce $10,000 worth of ore in the first year. As the ore closest to the s

urface is removed it will become more difficult to extract the ore. Therefore, the value of the ore that you mine will decline at a rate of 7% per year forever. If the appropriate interest rate is 3%, then the value of this mining operation is closest to
Business
1 answer:
Agata [3.3K]3 years ago
7 0

Answer:

$100,000

Explanation:

Cash flow = $10,000

Interest rate = 3%

Growth = -7%

Value of this mining operation = Cash / (Rate - Growth)

Value of this mining operation = $10,000 / (3% -(-7%)

Value of this mining operation = $10,000 / 10%

Value of this mining operation = $10,000 / 0.10

Value of this mining operation = $100,000

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