Oro Mining, Inc., has just discovered two new mining sites for copper. Geologists and engineers have come up with the following estimates regarding costs and copper yields if the mines are opened:

Oro’s owners currently demand a return of 18 percent of the market price of copper.

Instructions
a. If the current market price of copper is $10 per ton, what is Oro’s target cost per ton?
b. Given the $10 market price, should either of the mines be opened?
c. The engineer working on Site Z believes that if a custom conveyor system is installed, the variable extraction cost could be reduced to $3.50 per ton. The purchase price of the system is $20,000, but the costs to restore the site will increase to $30,000 if it is installed. Given the current $10 market price, should Oro install the conveyor and open SiteZ?

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Site A Site Z Variable extraction costs per ton Fixed costs over the life of the mine: $4.20$4.50 Blasting . ..$160,000 $200,000 Maintenance 30,000 30,000 10,000 $480,000 $500,000 50,000 Total fixed costs Total tons of copper that can be extracted over the life of the mine: 240,000 200,000