A mining firm has the opportunity to purchase a license on a plot of land to mine for gold. Consider the following financial information:
• The investment cost to mine is $140M.
• It costs $1,115 per ounce to mine gold.
• The spot price of gold is $1,222 per ounce.
• The licensing agreement provides exclusive rights for three years.
• The historical volatility of gold prices is 20%.
• The estimated gold reserve on the plot of land is 1.5M ounces.
• The firm’s MARR is 12% and r 6%.
Determine the maximum amount the firm should pay for a license to mine for gold on the property in question, or equivalently, what is the value of the gold mine today?