A potential mine site is expected to have: gold with a 20% chance, producing $5m/year for...
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A potential mine site is expected to have: gold with a 20% chance, producing $5m/year for 15 years starting a year from initial dig, silver with a 30% chance, producing $4m/year for 15 years, starting a year from initial dig, copper with 40% chance, producing $2m/year for 15 years, starting a year from initial dig, and no precious metals or minerals with 10% chance. The mining costs $20 million to be paid when the digging starts. If you pay $1m to a testing company today, they will test the mine and will be able to tell you whether there is silver or not. Test will take 1 year. If there is no silver, the probability of gold, copper, and no metal becomes 30%, 50%, 20% respectively. Should you test today, should you dig without testing today, or should you walk away? A potential mine site is expected to have: gold with a 20% chance, producing $5m/year for 15 years starting a year from initial dig, silver with a 30% chance, producing $4m/year for 15 years, starting a year from initial dig, copper with 40% chance, producing $2m/year for 15 years, starting a year from initial dig, and no precious metals or minerals with 10% chance. The mining costs $20 million to be paid when the digging starts. If you pay $1m to a testing company today, they will test the mine and will be able to tell you whether there is silver or not. Test will take 1 year. If there is no silver, the probability of gold, copper, and no metal becomes 30%, 50%, 20% respectively. Should you test today, should you dig without testing today, or should you walk away?
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Related Book For
Intermediate Accounting
ISBN: 978-1118300855
10th Canadian Edition Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy
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