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##### 1. Hickock Mining is evaluating when to open a g...

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1. Hickock Mining is evaluating when to open a gold mine. The mine has 79,200 ounces of gold left that can be mined, and mining operations will produce 7,200 ounces per year. The required return on the gold mine is 11 percent, and it will cost $14 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 $453 per ounce. If the company waits one year, there is a 58 percent probability that the contract price will generate an aftertax cash flow of $503 per ounce and a 42 percent probability that the aftertax cash flow will be $413 per ounce. Required: What is the value of the option to wait? Round your answer to 2 decimal places. 2. L.J.'s Toys Inc. just purchased a $250,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its five-year economic life. Each toy sells for $23. The variable cost per toy is $6, and the firm incurs fixed costs of $345,000 each year. The corporate tax rate for the company is 36 percent. The appropriate discount rate is 9 percent. Required: What is the financial break-even point for the project? (Round your answer to the nearest whole number.

Paper#8847 | Written in 18-Jul-2015

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