You own a uranium mine, and the price of uranium is expected to increase at a rate of 3 percent per year. The cost of capital for your firm is 15 percent, and you are evaluating whether or not to begin harvesting the element. The correct choice is to begin harvesting immediately under all circumstances.

Question

Quizplus · Accepted Answer

The decision to begin harvesting should consider the cost of capital and the expected increase in uranium prices. If the cost of capital (15%) is significantly higher than the price increase rate (3%), it may not be financially beneficial to start harvesting immediately.

You Own a Uranium Mine, and the Price of Uranium