Question

A silver mine can yield 10,000 ounces of silver at a variable cost of $32 per ounce. The fixed costs of owning the mine are $40,000 per year regardless of whether the mine is open or closed. In half the years, silver can be sold for $48 per ounce; in the other years, silver can be sold for only $24 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? b. Now suppose you can costlessly shut down the mine in years of low silver prices. What happens to the average cash flow from the mine? Note: Use cells A7 to B11 from the given information to complete this question. You may use the hardcoded number "2" in your formulas. No other hardcoded numbers may be used. Input area: Silver yield in ounces 10,000 Variable cost per ounce $32 Fixed costs $40,000 Sales price #1 $48 Sales price #2 $24 Output area: a. Average cash flow b. Average cash flow

          A silver mine can yield 10,000 ounces of silver at a variable cost of $32 per ounce. The fixed costs of owning the
mine are $40,000 per year regardless of whether the mine is open or closed. In half the years, silver can be sold for
$48 per ounce; in the other years, silver can be sold for only $24 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?
b. Now suppose you can costlessly shut down the mine in years of low silver prices. What happens to the average
cash flow from the mine?
Note: Use cells A7 to B11 from the given information to complete this question. You may use the hardcoded
number "2" in your formulas. No other hardcoded numbers may be used.
Input area:
Silver yield in ounces
10,000
Variable cost per ounce
$32
Fixed costs
$40,000
Sales price #1
$48
Sales price #2
$24
Output area:
a. Average cash flow
b. Average cash flow

A silver mine can yield 10,000 ounces of silver at a variable cost of 32 per ounce. The fixed costs of owning the
mine are40,000 per year regardless of whether the mine is open or closed. In half the years, silver can be sold for
48 per ounce; in the other years, silver can be sold for only24 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?
b. Now suppose you can costlessly shut down the mine in years of low silver prices. What happens to the average
cash flow from the mine?
Note: Use cells A7 to B11 from the given information to complete this question. You may use the hardcoded
number "2" in your formulas. No other hardcoded numbers may be used.
Input area:
Silver yield in ounces
10,000
Variable cost per ounce
32
Fixed costs40,000
Sales price #1
48
Sales price #224
Output area:
a. Average cash flow
b. Average cash flow

Added by Sarah H.

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