Question

Meiger Mining, Inc., has just discovered two new mining sites for iron ore. Geologists and engineers have come up with the estimates on the following page regarding costs and ore yields if the mines are opened. Site A Site B Variable extraction costs per ton $ 3.80 $ 4.00 Fixed costs over the life of the mine: Blasting $ 150,000 $ 185,000 Construction 225,000 240,000 Maintenance 25,000 20,000 Restoration costs 40,000 35,000 Total fixed costs $ 440,000 $ 480,000 Total tons of ore that can be extracted over the life of the mine: 200,000 160,000 Meiger's owners currently demand a return of 21 percent of the market price of iron ore. Required: a. If the current market price of iron ore is $8.4 per ton, what is Meiger's target cost per ton

Answer 1

Answer: $6.64

Step-by-step explanation:

Current price is $8.40 and the owners of Meiger want a 21% return on the market price.

This means that the cost should be such that the when a 21% return on the market is added to it, the result will be $8.40.

First find 21% of 8.40:

= 21% * 8.40

= $1.76

Target cost should be:

= Selling price - Expected return

= 8.40 - 1.76

= $6.64