Evaluate the following statement: 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

While it is true that the price of uranium is expected to increase at a rate of 3 percent per year, the cost of capital for the firm is significantly higher at 15 percent. This means that if the firm were to invest in the uranium mine, the returns from the mining operations would have to be greater than 15 percent in order to justify the investment. It is not clear from the statement whether the expected returns from the uranium mine exceed the cost of capital, so the correct choice cannot be determined without further information.

Evaluate the Following Statement: You Own a Uranium Mine, and the Price