USGOLD Company Has an Opportunity to Invest in a Gold

question 19

Multiple Choice

USGOLD Company has an opportunity to invest in a gold mine. The initial investment is $250 million. Analysts estimate that the mine will produce 100,000 ounces of gold per year for the next 10 years. The extraction cost of gold is $150 per ounce and is expected to remain at that level. The current price of gold is $600 per ounce and is expected to increase 4 percent per year for the next 10 years. What is the NPV of the project at a discount rate of 10 percent? (Ignore taxes.)

• A)−$3.8 million
• B)$240.8 million
• C)$257.8 million
• D)$84.9 million

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Definitions:

Outstanding Checks

Checks that have been written and recorded in the payer's financial records but have not yet been cashed or cleared by the bank.

Deposits In Transit

Funds that have been received and recorded by a company, but not yet recorded by its bank, typically at the end of a financial period.

Bank Service Charge

A bank service charge is a fee imposed by a bank on its customers for the provision of banking services such as account maintenance, transactions, and overdrafts.

Petty Cash Fund

A little sum of money reserved for immediate outlays on diverse small expenditures.