You are thinking about investing in a mine that will produce…
You are thinking about investing in a mine that will produce $7,000 worth of ore in the first year (i.e., year 1). As the ore closest to the surface is removed, it will become more difficult to extract the ore. Therefore, the value of the ore that you mine will decrease at a rate of 2% per year (i.e., -2%) forever. If the appropriate interest rate is 3% per year, then the present value (PV0) of this mining operation is closest to:
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