A Mining Company Will Spend $28 Million in Order to Exploit

question 105

Multiple Choice

A mining company will spend $28 million in order to exploit a low-grade placer deposit of gold ore.They estimate the deposit will produce profits of $6 million per year for six years.They calculate the net present value (NPV) using an estimated cost of capital of 6%.What is the maximum that the cost of capital can deviate from this estimate that still makes the decision to mine worthwhile?

• A)1.60%
• B)1.66%
• C)1.69%
• D)1.72%
• E)1.76%

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