LBT Mining Inc. owns a lease to extract iron ores from a mining site in Mongolia. An initial construction cost of $50 million is required and this cost is expected to be constant no matter when the construction starts. The expected price of iron ore is $80/ton and the extraction costs are $65/ton. The quantity of iron ore Q = 300,000 tons per year forever. The risk-free interest rate is 6% per year and that is also the cost of capital (ignore taxes). Assume revenue is earned and costs are paid at the end of each year.

(i). Calculate the NPV if invest today. (4 marks)

(ii). Suppose the iron ore price is uncertain and can be $90/ton or $70/ton with equal probability next year. Further assume that once the price is confirmed at t=1, it will remain constant forever in future. Calculate the NPV of the project (at t=0) if postponed by one year. (6 marks)

(iii). Based on your answers in (i) and (ii), calculate the value of the option to wait for one year.