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%

---

Definitions:

Pitfalls

Hidden or unexpected difficulties or dangers that complicate endeavors or tasks.

Benefits

Advantages or payments made to individuals or groups, often from governments or employers, to support well-being or provide assistance.

Medicare

A federal health insurance program in the United States for people who are 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease.