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Hickock Mining is evaluating when to open a gold mine. The mine has 44,000 ounces of gold left that can be mined, and mining operations will produce 5,500 ounces per year. The required return on the gold mine is 12 percent, and it will cost $33.5 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 $1,350 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 $1,550 per ounce and a 40 percent probability that the aftertax cash flow will be $1,250 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.)
You purchased four call option contracts with a strike price of $40 and an option premium of $1.25. You closed your contract on the expiration date when the stock was selling for $42.50 a share. What is your total profit or loss on your option positi..
Expected Return Circuit City Stores (CC) recently paid a $.29 dividend. The dividend is expected to grow at a 24.30 percent rate. At the current stock price of $9.26, what is the return shareholders are expecting?
Estes Park Corp. pays a constant $1.7 dividend on its stock. The company will maintain this dividend for the next 17 years and will then cease paying dividends forever. If the required return on this stock is 2.34 percent, what is the current share p..
Assume you have reached a point in your life where you have a budget, your cash inflows and outflows are matched to the point where your bills are getting paid; you have an emergency fund to cover contingencies; and your overall needs of your family ..
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy a bond ..
Jane issued five-year bonds that pay a coupon of 6.5 percent semi annually. The current market rate for similar bonds is 5.5 percent. How much will you be willing to pay for Jane's bond today? Jane is issuing a 10-year bond with a coupon rate of 6.76..
Hugh and Mary own a cabin in Big Bear that they rented for 45 days at $4,500. They used the cabin for personal use for 30 days during the year. The allocated expenses related to the cabin of $6,000 resulted in a net loss of $1,500 for this rental act..
Warner Cable Company needs to replace 5 vehicles in its 50 vehicle fleet. Warner is considering two different types of vehicles: a higher cost, higher gas mileage vehicle (Vehicle Type HC) or a lower cost, lower mileage vehicle (Vehicle Type LC). Wha..
Dinklage Corp. has 4 million shares of common stock outstanding. The current share price is $83, and the book value per share is $8. The company also has two bind issues outstanding. The first bond issue has a face value of $90 million, a coupon of 6..
St. Benedict's Hospital exercise: . 6.5 Now, assume that the hospital uses the step-down method for cost allocation, with salary dollars as the cost driver for General Administration, housekeeping labor hours as the cost driver for Facilities, and pa..
A Treasury bill has a bid yield of 3.58% and an ask yield of 3.52%. The bill matures in 100 days. Assume a face value of $1,000. What is the dollar spread for this bill?
You started an education fund for your child. You are expecting him/her to attend college 18 years from now. According to statistics, the expected amount you will need 18 years later should be $300,000. If the fund provides a rate of return of 10% pe..
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