corporate finance

solutions must delineate how you reach the final answer.

A gold mine has 10 pounds of reserves that we can extract at no cost a year from now. The mine also has additional reserves of 5 pounds that can also be extracted a year from now but at a cost of $6 per pound. One-year forward price of gold is $9 per pound. An analyst estimate the gold price next year is either $13 in a good economy or $7 in a bad economy. The risk free rate is 5% per annum. Respond to (a) and (b). (a) Compute the value of mine. (b) Now suppose that the extraction cost for additional reserves is $8 (instead of $6). If you can decide whether to extract the additional reserve after observing the market price of gold next year, what is the value of mine