You own a coal mining company and are considering opening a new mine. The mine itself...

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Finance

You own a coal mining company and are considering opening a newmine. The mine itself will cost $ 118.1 million to open. If thismoney is spentâ€‹ immediately, the mine will generate $ 21.3 millionfor the next 10 years. Afterâ€‹ that, the coal will run out and thesite must be cleaned and maintained at environmental standards. Thecleaning and maintenance are expected to cost $ 1.7 million peryear in perpetuity. What does the IRR rule say about whether youshould accept thisâ€‹ opportunity? If the cost of capital is 8.3 %â€‹,what does the NPV ruleâ€‹ say?

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3.7 Ratings (514 Votes)

First of all we shall calculate the IRR of the project by using the below formula Lower Rate Lower Rate NPV Lower Rate NPV Higher Rate NPV x Higher Rate Lower Rate Now lets calculate the projects NPV at a rate of say 10 1181 million 213 million 1101 213 million 1102 213 million 1103 213 million 1104 See Answer

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