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What is the initial cost of the copper mine

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Question - The Winderl Mining Co. paid $50 million for the right to explore and extract copper from land owned by the state of Wyoming. To obtain the rights, Winderl agreed to restore the land to a suitable condition for other uses after its exploration and extraction activities. Winderl incurred exploration and development costs of $15 million on the project. The company's credit-adjusted risk-free interest rate is 6%. It estimates the possible cash flows for restoring the land, three years after its extraction activities begin, as follows:

Cash outflow Probability $5 million 40% $10 million 60%

What is the initial cost of the copper mine?

1. $65,000,000

2. $73,000,000

3. $71,716,960

4. $95,000,000

Reference no: EM132540243

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