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1. John Bro. LLC is a gold mining company




Question;1. John Bro. LLC is a gold mining company operating a single mine. The;present price of gold is $300 an ounce and it costs the company $250 an;ounce to produce the gold. Last year, 50,000 ounces were produced and;engineers estimate that at this rate of production the mine will be;exhausted in seven years. The required rate of return on gold mines is;10 percent. a. What is the value of the mine?b.;Suppose inflation is expected to increase the cost of producing gold by;10 percent a year but the price of gold does not change because of;large sales of stock-piled gold by foreign governments. Furthermore;imagine that the inflation raises the required rate of return to 21;percent. Now, what is the value of the mine?


Paper#41907 | Written in 18-Jul-2015

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