You have discovered a mountain of guano in Japan. Up to five guano mines could be constructed on the mountain. Each mine costs ¥600,000 and is expected to yield 150 ounces of guano in one year. The actual yield will be either 100 ounces or 200 ounces with equal probability. All of the guano will be extracted in the first year of operation and sold to the government at a guaranteed price of ¥5,000/oz. (It's high quality guano.)

Variable production costs are ¥1,000 per ounce. The yen discount rate is 0 percent per year. The mines will be worthless after the guano is extracted. Because of the importance of guano to Japanese politics, the government has agreed to provide you with a zero tax rate on the mine. (Note that noncash depreciation or depletion allowances have no effect on cash flow when the tax rate is zero.) You can invest in an exploratory mine today and then base subsequent investment on the outcome of the first mine. Once you know the yield of the first mine, you will know the yield of the other four mines with certainty. Each additional mine costs ¥600,000 in nominal terms. Price and variable cost will remain constant at ¥5,000 and ¥1,000 per ounce, respectively.

a. Calculate the NPV of investing in all five mines as a now-ornever alternative.

b. Calculate the NPV (as of ) of investing in a single mine and then waiting one year before considering investment in the other four mines.

c. Should you invest in the exploratory mine?