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correct, 4.5-16 You are thinking about investing in a mine that will produce​ $10,000 worth of...

correct, 4.5-16

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:

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Answer #1

Value of the mining operation = CF / (r - g)

Value of the mining operation = $10,000 / (0.06 - (-0.08))

Value of the mining operation = $10,000 / 0.14

Value of the mining operation = $71,429

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