1) XYZ Mining is estimating when to open gold mine. Mine has= 39,200 ounces of gold left which can be mined, and mining operations will create= 5,600 ounces per year. Required return on gold mine is 10 %, and it will cost= $33.6 million to open mine. When mine is opened, company will sign contract which will assurance price of gold for remaining life of mine. If mine is opened today, every ounce of gold will make an after tax cash flow of= $1,360 per ounce. If company waits one year, there is a 55% probability that contract price will make an after tax cash flow of= $1,560 per ounce and 45% probability that after tax cash flow will be= $1,260 per ounce.
Compute the value of option to wait?
2ABC Toys Inc. just bought= $350,000 machine to make toy cars. Machine will be completely depreciated by = straight-line method over its 5-year economic life. Every toy sells for= $25. Variable cost per toy is= $11 and firm incurs fixed costs of= $272,000 every year. Corporate tax rate for company is 34%. Suitable discount rate is 12%. Determine financial break-even point for project?