ocean water contains .9 ounces of gold per ton. Method A costs $550 per ton of w
ID: 1168167 • Letter: O
Question
ocean water contains .9 ounces of gold per ton. Method A costs $550 per ton of water processed and will recover 90% of the metal. Method B costs $400 per ton of water processed and will recover 60% of the metal. The two methods require the same capital investment and are capable of producing the same amount of gold each day. If the extracted gold can be sold for $1,750 per ounce, which method should be recomended ? The supply of ocean water is essentially unlimited. Hint: Work this problem on the basis of profit per ounce of gold extracted.
Explanation / Answer
Method - 1:
Gold recovered = 0.9 Oz x 90% = 0.81 Oz per ton
Price of gold extracted (Revenue) = 0.81 x $1,750 = $1,417.50
Cost = $550
Profit = Revenue - Cost = $(1,417.50 - 550) = $867.50
Method - 2:
Gold recovered = 0.9 Oz x 60% = 0.54 Oz per ton
Price of gold extracted (Revenue) = 0.54 x $1,750 = $945
Cost = $400
Profit = Revenue - Cost = $(945 - 400) = $545
Since mthod 1 yields higher profits, method 1 should be adopted.
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