Problem 10-24 Project Options (L 04) A silver mine can yield 16,000 ounces of si

Question

Problem 10-24 Project Options (L 04) A silver mine can yield 16,000 ounces of silver at a variable cost of $36 per ounce. The fixed costs of operating the mine are $48,000 per year. In half the years, silver can be sold for $52 per ounce: in the other years silver can be sold for only $26 per ounce. Ignore taxes. a. What is the average cash flow you will receive from the mine if it is always kept in operation and the silver always Is sold in the year it is mined? Average cash flow $ b. Now suppose you can shut down the mine in years of low silver prices. Calculate the average cash flow from the mine. Average cash flow $

Explanation / Answer

A) Average Cash Flow will be zero when the siilver is old @ 52/ounce in half years and @ 26/ounce in the other half.

B) Average Cash Flow will be $80000 when silver is @ 52/ounce and not sold during the low silver prices. Since you still have to incure Fixed costs during the low silver prices year.

Selling price @ 52 per ounce Selling price @ 26 per ounce A) 1 2 3 4 5 6 7 8 9 10 Sales of 16000 ounces 832000 832000 832000 832000 832000 416000 416000 416000 416000 416000 VC @ 26 per ounce -576000 -576000 -576000 -576000 -576000 -576000 -576000 -576000 -576000 -576000 FC -48000 -48000 -48000 -48000 -48000 -48000 -48000 -48000 -48000 -48000 Cash Flow 208000 208000 208000 208000 208000 -208000 -208000 -208000 -208000 -208000 Average 0

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.