7) [12 Points total] Frontier Inc. (FI) mines gold. It is considering the construction of a mine at a cost of $600 million. The current price of gold is $120/oz. and extraction costs are $40/oz. FI expects costs to remain constant. The mine will produce an estimated 1,500,000 oz per year forever (FI will be able to sell 1.5 million oz at the end of the current year at the current price). The cost of capital is 10%. The tax rate is 0% (no taxes). Suppose that gold prices are uncertain and have a 40% chance of being $140/oz. next year, and a 60% chance of being $70/oz next year. Fl has the option to postpone the project by one year. a) [4 Points] List four types of analysis that are used to analyze uncertainty of a project b) [8 Points) Calculate the value of the real option to postpone the project for one year. 7) [12 Points total] Frontier Inc. (FI) mines gold. It is considering the construction of a mine at a cost of $600 million. The current price of gold is $120/oz. and extraction costs are $40/oz. FI expects costs to remain constant. The mine will produce an estimated 1,500,000 oz per year forever (FI will be able to sell 1.5 million oz at the end of the current year at the current price). The cost of capital is 10%. The tax rate is 0% (no taxes). Suppose that gold prices are uncertain and have a 40% chance of being $140/oz. next year, and a 60% chance of being $70/oz next year. Fl has the option to postpone the project by one year. a) [4 Points] List four types of analysis that are used to analyze uncertainty of a project b) [8 Points) Calculate the value of the real option to postpone the project for one year