SECTION A 1) Cobre de Chile is a copper producing company from Chile. It currently has...

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SECTION A 1) Cobre de Chile is a copper producing company from Chile. It currently has 1M shares and each has a price of $150. The company discovered copper ore reserves that would increase its value with certainty by $50M, but it has not revealed the discovery yet. The company also recently informed the market that it needs to raise $30M through a share issuance to finance exploration to remain competitive. (25 marks) A) When should the company issue the new shares? Explain numerically (5 marks) B) Somehow the news about the copper discovery leaked to the market, which now assigns it a probability of 50% of having a value of $25M and 50% of $75M. What should the company do? Explain numerically (5 marks) C) Now assume that the market assigns different probabilities, with the good scenario having a probability of 25%. Does your response change? Explain numerically (5 marks) D) How would your response in C) change if the company knows that the true value of the ore reserves is either $75M or $25M? Also assume that it can postpone the investment in exploration indefinitely. Explain numerically (10 marks) SECTION A 1) Cobre de Chile is a copper producing company from Chile. It currently has 1M shares and each has a price of $150. The company discovered copper ore reserves that would increase its value with certainty by $50M, but it has not revealed the discovery yet. The company also recently informed the market that it needs to raise $30M through a share issuance to finance exploration to remain competitive. (25 marks) A) When should the company issue the new shares? Explain numerically (5 marks) B) Somehow the news about the copper discovery leaked to the market, which now assigns it a probability of 50% of having a value of $25M and 50% of $75M. What should the company do? Explain numerically (5 marks) C) Now assume that the market assigns different probabilities, with the good scenario having a probability of 25%. Does your response change? Explain numerically (5 marks) D) How would your response in C) change if the company knows that the true value of the ore reserves is either $75M or $25M? Also assume that it can postpone the investment in exploration indefinitely. Explain numerically (10 marks)

Answer rating: 100% (QA)

A The company should issue the new shares before the information about the copper discovery is revea... View the full answer