Several years ago a gold mining company purchased the drilling rights for an area of northern Western Australia, at a cost of $400,000, and is now deciding whether there is enough gold to justify digging a gold mine. If the mine does not go ahead, the mining rights can be sold to another company for $500,000.

How would you describe the value of the mining rights in the NPV analysis of the project?

Select one:

a. The $400,000 is an opportunity cost.

b. The $500,000 is a sunk cost.

c. The $500,000 is an opportunity cost.

d. The $400,000 is a sunk cost.