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A Company has 8 million Kg of Coppar. Mining will include 1.25 million Rs.

Of cost for one year of developm Extraction Cost 0.85 Rs. At beginning of extraction phase. (One year after development phase is initiated). Sal Current Spot Price 0.95 per Kg. Change in the price of coppar is 7% and Standard Deviation is 20% per annu Required Rate of return is 10% and riskless rate is 5%.

NPV Analysis Initial Cost Quantity S0 Price change Required Rate of Return Extraction Cost OutPut data Expected Price of Coppar in 1 year S1 Outflow Inflow Expected NPV

-1.25 8 million Kg 0.95 per KG 7% 10% 0.85 per KG

1.01888 -1.25 1.22824 -0.02176

Decision Project is Rejected Because of Negative Expected NPV

r one year of development immidietely. phase is initiated). Sale of coppar would be at spot price as of coppar as of beginning of extraction phase. iation is 20% per annum.

Black-Scholes Model:
Input Data Stock Price now (P) Exercise Price of Option (EX) Number of periods to Exercise in years (t) Compounded Risk-Free Interest Rate (rf) Standard Deviation (annualized s) Output Data Present Value of Exercise Price (PV(EX)) s*t^.5 d1 d2 Delta N(d1) Normal Cumulative Density Function Bank Loan N(d2)*PV(EX) Value of Call Value of Put 7.6 6.8 1 5.00% 20.00%

6.4684 ,=K*e^(-rt) 0.2000 ,=Std. * t^1/2 0.9061 0.7061 0.8176 4.9156 1.2979 0.1663

Decision Option Adjusted Present value 0.0479 Accept Project because of Positive Expected NPV

A Company has 8 million Kg of Coppar. Mining will include 1.25 million Rs. Of cost for one year of developm Extraction Cost 0.85 Rs. At beginning of extraction phase. (One year after development phase is initiated). Sal Current Spot Price 0.95 per Kg. Change in the price of coppar is 7% and Standard Deviation is 20% per annu Required Rate of return is 10% and riskless rate is 5%.

NPV Analysis Initial Cost Quantity S0 Price change Required Rate of Return Extraction Cost OutPut data Expected Price of Coppar in 1 year S1 Outflow Inflow Expected NPV

-1.25 8 million Kg 0.95 per KG 7% 10% 0.85 per KG

1.01888 -1.25 1.22824 -0.02176

Decision Project is Rejected Because of Negative Expected NPV

r one year of development immidietely. phase is initiated). Sale of coppar would be at spot price as of coppar as of beginning of extraction phase. iation is 20% per annum.

Black-Scholes Model:
Input Data Stock Price now (P) Exercise Price of Option (EX) Number of periods to Exercise in years (t) Compounded Risk-Free Interest Rate (rf) Standard Deviation (annualized s) Output Data Present Value of Exercise Price (PV(EX)) s*t^.5 d1 d2 Delta N(d1) Normal Cumulative Density Function Bank Loan N(d2)*PV(EX) Value of Call Value of Put 7.6 6.8 1 5.00% 20.00%

6.4684 ,=K*e^(-rt) 0.2000 ,=Std. * t^1/2 0.9061 0.7061 0.8176 4.9156 1.2979 0.1663

Decision Option Adjusted Present value 0.0479 Accept Project because of Positive Expected NPV