You Are Thinking About Investing in a Mine That Will

question 55

Multiple Choice

You are thinking about investing in a mine that will produce $10,000 worth of ore in the first year.As the ore closest to the surface is removed it will become more difficult to extract the ore.Therefore,the value of the ore that you mine will decline at a rate of 8% per year forever.If the appropriate interest rate is 6%,then the value of this mining operation is closest to:

• A)$71,429.
• B)$500,000.
• C)$166,667.
• D)This problem cannot be solved.

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Definitions:

Liabilities

Liabilities or monetary duties a firm has towards outside entities.

Revenues

The overall income earned from transactions of goods or services central to a business's core functions.

Operating Revenues

The income earned from a company's main business operations, excluding income from investments or secondary sources.

Operating Expenses

The costs associated with the normal operations of a business, excluding costs related to producing goods or services, like rent, utilities, and salaries.