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? a. The $500,000 is an opportunity cost. b. The $400,000 is an opportunity cost. c. The $500,000 is a sunk cost. d. The $400,000 is a sunk cost.

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? a. The $500,000 is an opportunity cost. b. The $400,000 is an opportunity cost. c. The $500,000 is a sunk cost. d. The $400,000 is a sunk cost.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows

Section: Chapter Questions

Problem 19P

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