The following headline recently appeared in the news: Overnight the prices of many commodities such as gold, oil, copper, silver, coal, iron ore, nickel and other commodities have risen to multi-year highs. Required Discuss how mineral exploration firms which are not yet producing but have significant discovered resources in the ground would account for this increase in commodity prices under AASB 6

The following headline recently appeared in the news: Overnight the prices of many commodities such as gold, oil, copper, silver, coal, iron ore, nickel and other commodities have risen to multi-year highs. Required Discuss how mineral exploration firms which are not yet producing but have significant discovered resources in the ground would account for this increase in commodity prices under AASB 6

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 18P

See similar textbooks

Similar questions

A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $2,100 an ounce, but the price is extremely volatile and could fall as low as $2,000 or rise as high as $2,200 in the next month. The company will bring 1,400 ounces of gold to the market next month. What will be the total revenues if the firm buys a 1-month put option to sell gold for $1,400 an ounce? The put option costs $48 per ounce.
A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $2,100 an ounce, but the price is extremely volatile and could fall as low as $2,000 or rise as high as $2,200 in the next month. The company will bring 1,400 ounces of gold to the market next month. Question: What will be the total revenues if the firm buys a 1-month put option to sell gold for $1,400 an ounce? The put option costs $48 per ounce.
an oil company that has recently established a refinery in the West Philippines Sea at an initialcost of Php 650,000,000 and an estimated 128,000,000 liters of oil on it. What will be the depletion charge duringthe year where the company has produced 80,000,000 liters of oil?
Hooper Chemical Company, a major firm that uses such raw materials as carbon and petroleum as part of its productions process, is examining a plastics firm to add to its operations. Before the acquisition, the normal expected outcomes for the firm were as follows: Recession outcomes $35 million probability 0.2 Normal economy outcomes $50 million probability 0.5 Strong economy outcomes $60 million probability 0.3. Compute the expected value, standard deviation, and coefficient of variation prior to the acquisition.
Investing $19,000,000 in additional raw materials today, mostly in Uranium-235, should allow Teller Inc. to increase production and earn a additional $22,200,000. Uranium is traded in the commodity markets and is mined primarily for nuclear plants for electrical power generation. The CFO of Teller Inc, Dr. Borr, has studied the history of returns on investments in uranium commodity markets and believes that investors can convert their investments into an explosive profit to the tune of 11%. Is Teller Inc.’s investment in the Uranium-235 project a wise idea? Why/Why Not?
The current price of gold is $400. The risk-free rate is 10% and the annual volatility for changes in gold prices is 30%. Gold prices are assumed to follow a lognormal distribution. Each year the mine is open a fixed cost of $1 million is incurred. This cost is incurred even if no gold is mined during the year. If we open (or re-open) the mine a cost of $2 million is incurred. If we shut the mine a fixed cost of $1.5 million is incurred. During the current year and each of the next 15 years we can, if the mine is open, mine up to 10,000 ounces of gold at a variable cost of $250 per ounce. What is the worth of this situation? Assume the mine is open at the beginning of year 1.
As part of their investment strategy, the Carringtons have decided to put $100,000 into stock market investments and also into purchasing precious metals. The performance of the investments depends on the state of the economy in the next year. In an expanding economy, it is expected that their stock market investment will outperform their investment in precious metals, whereas an economic recession will have precisely the opposite effect. Suppose the following payoff matrix gives the expected percentage increase or decrease in the value of each investment for each state of the economy. Expanding Economic economy recession Stock market investment Commodity investment 20 10 -10 15 (a) Determine the optimal investment strategy for the Carringtons' investment of $100,000. (Round your answers to the nearest dollar.) stocks $ commodities $ (b) What profit can the Carringtons expect to make on their…
As part of their investment strategy, the Carringtons have decided to put $100,000 into stock market investments and also into purchasing precious metals. The performance of the investments depends on the state of the economy in the next year. In an expanding economy, it is expected that their stock market investment will outperform their investment in precious metals, whereas an economic recession will have precisely the opposite effect. Suppose the following payoff matrix gives the expected percentage increase or decrease in the value of each investment for each state of the economy. Expanding Economic economy recession Stock market investment Commodity investment 30 5 -10 20 (a) Determine the optimal investment strategy for the Carringtons' investment of $100,000. (Round your answers to the nearest dollar.) stocks $ commodities $
For the last 10 years, Am-Mex Coal has used the cost depletion factor of $2500 per 100 tons to write off the investment of $35 million in its Pennsylvania anthracite coal mine. Depletion thus far totals $24.8 million. A new study to appraise mine reserves indicates that no more than 800,000 tons of salable coal remains. Determine next year’s cost and percentage depletion amounts, if estimated gross income is expected to be between $6.125 and $8.50 million on a production level of 72,000 tons.
Amoco Canada has oil field equipment placed into service 5 years ago for which a replacement study has been requested. Due to its special purpose, it has been decided that the current equipment will have to serve for either 2, 3, or 4 more years before replacement. The equipment has a current market value of $100,000, which is expected to decrease by $25,000 per year. The AOC is constant now, and is expected to remain so, at $25,000 per year. The replacement challenger is a fixed-price contract to provide the same services at $60,000 per year for a minimum of 2 years and a maximum of 5 years. Use MARR of 12% per year to perform a replacement study over a 6-year period to determine when to sell the current equipment and purchase the contract services.
PCW Co is a listed company that operates in the automobile industry. Due to an increase in local demand for the company’s products, PCW Co decides to invest in a new machinery. Such an investment project requires some initial investment in working capital of $300,000. And the investment in working capital is subject to general inflation, which is forecasted to be 5% per annum. The cost of the new machine is $3 million. Each year, the new investment is estimated to generate 7,000 products and all of them are expected to be sold. For simplicity’s reason, there is no scrap value of the machine. The usual lifetime of the machinery would be 3 years, after which it is supposed to be replaced. The costs and selling price in current price terms are summarised as follows: Annual sector-specific inflation Variable costs. $100 / unit 6.0 % Incremental fixed costs $200,000 / year. 4.5 % Selling price $400 / unit…
The Pet Company has recently discovered a type of rock which, when crushed, is extremely absorbent. It is expected that the firm will experience (beginning now) an unusually high growth rate (20%) during the period (3 years) when it has exclusive rights to the property where this rock can be found. However, beginning with the fourth year the firm's competition will have access to the material, and from that time on the firm will assume a normal growth rate of 8% annually. During the rapid growth period, the firm's dividend payout ratio will be relatively low (20%), to conserve funds for reinvestment. However, the decrease in growth will be accompanied by an increase in dividend payout to 50%. Last year's earnings were $2.00 per share (E0) and the firm's cost of equity is 10%. What should be the current price of the common stock?