1 Risk Management: The Producer's Perspective Golddigers is a gold-mining firm planning to mine and sell 100,000 ounces of gold over the next year. For simplicity, we will assume that they sell all of precisely 1 year from today, receiving whatever the gold price is that day. The price of gold today is $405/oz. We will ignore production beyond the next year. The risk free rate is 5% the next year's production Obviously Golddigger's like any producer-hopes that the gold price will rise over the next year. However Golddiggers's management computes estimated net income for a range of possible prices of gold in 1 year (see table below) Gold Price Fixed Variable in One Year Cost Cost $350 $400 $450 $500 $330 -$50 $330 $50 $330 $50 $330 -$50 The net income calculation shows that Golddigger's profit is affected by gold prices 1. Should Golddigger simply shut the mine if gold prices fall enough to make net income negative? 2. Find Golddigger's estimated net income one year from today Gold Price Fixed Variable Net in One Year Cost Cost $350 $400 $450 $500 Income $330 $50 $330 $50 $330 -$50 $330 $50