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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.)
What are the benefits of ratio analysis? What are the limitations of ratio analysis? What can be done to minimize the limitations on ratio analysis? Explain.
The sales forecast may be presented as. If the pro forma balance sheet indicates that the projected assets exceeds the projected liabilities and equity, The firm's total capital budget is the:
The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $11 million but realizes after-tax inflows of $5 million per year for 4 yea..
Explain the difference between the NYSE, NASDAQ and the O.T.C. In your answer explain which market is organized and unorganized? What is the role of a “market maker” in the purchase of stock?
The treasurer of a large corporation wants to invest $36 million in excess short-term cash in a particular money market investment. The prospectus quotes the instrument at a true yield of 4.48 percent; that is, the EAR for this investment is 4.48 per..
You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $510,000 per year. Thus, in one year, you receive $1.51 million. In two years you get $2.02 million, and so on. If the appropriate intere..
Mississippi River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $27,000 to $44,000 per year. The new machine will cost $80,000, and it will have an estim..
The returns on stocks A and B are perfectly negatively correlated (). Stock A has an expected return of 21 % and a standard deviation of return of 40%. Stock B has a standard deviation of return of 20%. The risk-free rate of interest is 11 %. What mu..
Suppose Franklin Corporation had pre-tax income of $300,000 in 2010 and the firm would have paid $100,250 in federal income taxes. What would have been Franklin’s average income tax rate?
Financial managers want to choose the capital structure that will maximize shareholder wealth. Shareholder wealth can be maximized by maximizing both the value of the firm and WACC. Changes in capital structure benefit stockholders if the value of th..
We are evaluating the sheet metal scrap rate in a contractor proposal. Based on a sample of 24 parts you calculate a mean rate of 6.50% (treat as 6.50) and a standard deviation of 1.20. Calculate a 80% confidence interval to be used to support negoti..
Tanner Tavern writes four checks a day for an average amount of $5,400 each. These checks generally clear the bank four days after they are written. In addition, the firm generally receives and deposits checks amounting to $18,700 each day. All depos..
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