Several years ago a gold mining company purchased the drilling rights for an area of northern Western Australia, at a cost of $400,000, and is now deciding whether there is enough gold to justify digging a gold mine. If the mine does not go ahead, the mining rights can be sold to another company for $500,000. How would you describe the value of the mining rights in the NPV analysis of the project? a. The $500,000 is an opportunity cost. b. The $400,000 is an opportunity cost. c. The $500,000 is a sunk cost. d. The $400,000 is a sunk cost.
Several years ago a gold mining company purchased the drilling rights for an area of northern Western Australia, at a cost of $400,000, and is now deciding whether there is enough gold to justify digging a gold mine. If the mine does not go ahead, the mining rights can be sold to another company for $500,000. How would you describe the value of the mining rights in the NPV analysis of the project? a. The $500,000 is an opportunity cost. b. The $400,000 is an opportunity cost. c. The $500,000 is a sunk cost. d. The $400,000 is a sunk cost.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Several years ago a gold mining company purchased the drilling rights for an area of northern Western Australia, at a cost of $400,000, and is now deciding whether there is enough gold to justify digging a gold mine. If the mine does not go ahead, the mining rights can be sold to another company for $500,000.
How would you describe the value of the mining rights in the NPV analysis of the project?
a.
The $500,000 is an opportunity cost .
b.
The $400,000 is an opportunity cost.
c.
The $500,000 is a sunk cost.
d.
The $400,000 is a sunk cost.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education