The tin producer GeorgesRemi, S.A. has acquired rights to a deposit of tin in Peru. According to the company geologists, there are 125,000 units of tin in the deposit. The estimate of the cost of extraction and sinelting of the tin in each period is C(Y) = 50 X Y, +0.001 x v. where I, represents number of units of tin extracted smelted in period 't = 0, 1, 2.. The world market price of a unit of tin is $150. This is not expected to change for at least five years. The return (proxy for interest rate) that GeorgesRemi, S.A. can earn on its other assets around the world is 5%. Part A: If GeorgesRemi, S.A. has a only a two-year lease on the deposit in Peru, how much of the tin will it abandon at the end of the lease? A. Fewer than 10,000 units. B. At least 10,000 units but fewer than 20,000 units. C. At least 20,000 units but fewer than 30,000 units. D. At least 30,000 units but fewer than 40,000 units. E. At least 40,000 units (40,000 or more). Part B: Which of the following changes will REDUCE the amount of tin ultimately abandoned (will INCREASE the amount extracted) from the deposit in Peru? A. Lease on the deposit increased from two years to four years. B. Price of tin falls to $120/unit. C. Retum on other assets interest) increases to 10%. D. Return on other assets interest) decreases to 3% E. Cost of extraction/smelting rises to C(Y) = 50 X Y, +0.002 x v. The tin producer GeorgesRemi, S.A. has acquired rights to a deposit of tin in Peru. According to the company geologists, there are 125,000 units of tin in the deposit. The estimate of the cost of extraction and sinelting of the tin in each period is C(Y) = 50 X Y, +0.001 x v. where I, represents number of units of tin extracted smelted in period 't = 0, 1, 2.. The world market price of a unit of tin is $150. This is not expected to change for at least five years. The return (proxy for interest rate) that GeorgesRemi, S.A. can earn on its other assets around the world is 5%. Part A: If GeorgesRemi, S.A. has a only a two-year lease on the deposit in Peru, how much of the tin will it abandon at the end of the lease? A. Fewer than 10,000 units. B. At least 10,000 units but fewer than 20,000 units. C. At least 20,000 units but fewer than 30,000 units. D. At least 30,000 units but fewer than 40,000 units. E. At least 40,000 units (40,000 or more). Part B: Which of the following changes will REDUCE the amount of tin ultimately abandoned (will INCREASE the amount extracted) from the deposit in Peru? A. Lease on the deposit increased from two years to four years. B. Price of tin falls to $120/unit. C. Retum on other assets interest) increases to 10%. D. Return on other assets interest) decreases to 3% E. Cost of extraction/smelting rises to C(Y) = 50 X Y, +0.002 x v
