You are considering investing in a new gold mine in South Africa. Gold in South...
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You are considering investing in a new gold mine in South Africa. Gold in South Africa is buried very deep, so the mine will require an initial investment of $ 300 million. Once this investment is made, the mine is expected to produce revenues of $ 25 million per year for the next 20 years. It will cost $ 12 million per year to operate the mine. After 20 years, the gold will be depleted. The mine must then be stabilized on an ongoing basis, which will cost $ 5.2 million per year in perpetuity. Calculate the IRR of this investment.
A. There are multiple IRRs.
B. The IRR is infinite as a result of the perpetuity.
C. The IRR is about 11%.
D. No positive IRR exists since the NPV, calculated as a function of various discount rates, never equals or exceeds zero.
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