Question
Carriero Mining operates a gold mine in Boca Raton. The total acquisition, exploration, and development costs are $5.9 million. In about 5 years, after the
Carriero Mining operates a gold mine in Boca Raton. The total acquisition, exploration, and development costs are $5.9 million. In about 5 years, after the gold is extracted Carriero is obligated to restore the land to its original condition which includes developing a wildlife preserve for wild accounting students. Carriero's chief accountant provided three cash flow possibilities for the restoration costs: (1) $530,000, 25% probability; (2) $580,000, 40% probability; and (3) $680,000, 35% probability. Carirero credit-adjusted, risk-free rate of interest is 7%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) What is gold mine's initial cost? (Enter your answers in whole dollars.)
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