Barrick is comparing two gold mines. Mine A: The mine is expected to make $3.5 billion in
Question:
Barrick is comparing two gold mines.
Mine A: The mine is expected to make $3.5 billion in year 1, $4.5 billion in year 2, and $5.5 billion in years 3-6 and $4.25 billion in years 7-10. At the end of year 10, Barrick will need to spend $202 million on environmental clean-up costs and expects the residual value to be $200 billion.
Mine B: The mine is currently in operation and produces $4.1 billion per year. At the end of 10 years the residual value would be $200 billion and no environmental clean-up costs would be necessary.
Which mine should Barrick buy for $142 billion. (To simplify things, assume Net Income is earned one time per year at the end of the year.) The appropriate discount rate is 6.22% compounded quarterly.
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill