LTD is evaluating when to open a gold mine. The mine has 44000 ounces of gold left that can be mined, and mining operation will produce 5,500 ounces per year over 8 years. It will cost $30 million to open the mine. Cost of Capital is 14%.When the mine is opened, the company will sign a contract that will guarantee the price of gold for the remaining life of the mine. If the mine is opened today, each ounce of gold will generate an after-tax cash flow of $1200 per ounce.

(a) calculate the NPV of this project.(3 marks)

(b)If the company waits for one year, there is a 60% probability that the contract price will generate an after-tax cash flow of $1500 per ounce and a 40% probability that the contract price will generate an after-tax cash flow of $900 per ounce.

(i)Calculate the NPV for waiting for one year.(5 marks)

(ii) Calculate the value of the option to wait.(4 marks)