Roi resources currently own an unused gold mine. the mine was shut down four years ago due to the depressed price of gold. However ROI are considering re-opening the mine.
Company management forecast that is would cost$ 400,000 to reopen the mine and they would extract 2000 ounces of gold per year for three years if the mine was reopened.after that time the deposit will be exhausted.
The current gold price is $1000 per ounce and it costs $920 per ounce to extract. Each year,while the price is equally likely to rise or fall by $100 from its level at the start of the year,while the extraction costs will remain constant. Assuming a discount rate of 12% should ROI open the mine now or should they wait one year to see if the price of gold raises?
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