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Suppose GeKay Inc. has a two-year lease over a small copper deposit; the government acquires all rights to the property at the end of the lease. It is known that the deposit contains eight million pounds of copper. Mining would involve a one-year development phase that would have an immediate (t=0) cost of $1.25 million. At the end of the development phase (at t=1), if GeKay decides to continue and mine the copper, GeKay would then pay all its extraction costs to a subcontractor, in advance, at a rate of 85 cents per pound (8 million pounds). This amounts to a cash payment of $6.8 million one year from now (at t=1). GeKay would also then (at t=1) sell the rights to the copper to be recovered (8 million pounds) to a third party at the spot price of copper at that time. Copper prices follow a process such that percentage price changes are normally distributed with mean 7% and standard deviation 20%; the current price is .95 cents per pound. The required return for copper mining projects is 10% and the riskless rate of interest (continuously compounded) is 5%.Determine thenet present valueNPVof GeKay's potential $1.25m mining venture with standard Discount Cash Flows (DCF) analysis and compare it to the NPV from Real Options analysis.
Question : (a) What are the three broad categories of buyers and sellers in the financial markets? (b) Differentiate between the primary and the secondary financial marke
An investor buys a French government, 10-year bond, paying annual coupon of 4.5%. Face value = 1000. The investor is unsure of his investment horizon and considers 5 horizons: 5, 6
How is data from the financial sites used to calculate dividends.
You are a ceo of a sotware firm that has limited access to debt equity markets. The average return on last year projects is 28 % . and cost of capital is 12%. would npv pr Irr be
The East Coast Conglomerate Co (ECCC) a small manufacturing company is doing a risk management assessment and a total review of their insurance policies. They have asked you, know
Suppose the dividends for the Seger Corporation over the past six years were $1.36, $1.44, $1.53, $1.61, $1.71, and $1.76, respectively. Compute the expected share price at the end
You are planning to open a homeless shelter called Helping Hands Mission Inc. in fiscal year (FY) 2011. You expect to have 60 beds and to operate at full capacity throughout the ye
what will be impact on the operating leverage of a firm if it proceeds for additional borrowings
What will happen to the required rate of return (SML) if the following events occur: a) Inflation expectations increase b) Investors become more risk averse c)
What will be impact on the operating leverage of a firm, if it proceeds for additional borrowings?
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