The Alger Co

Multiple Choice

The Alger Co. operates a bauxite mine. The mine can produce 800,000 tons a year. The mine is currently closed and will cost $12 million to open it. When should the mine be opened?

A) At a net bauxite price after extraction/production costs equal to $15.00 per ton before discounting and valuing extended options.
B) At a net bauxite price after extraction/production costs greater than $15.00 per ton before discounting and valuing extended options.
C) If the mineable bauxite is available then the mine should be open because the cash breakeven is less than $15.00 per ton.
D) If mineable bauxite exists at any price close to $15.00 per ton if bauxite prices are high volatile.