The Utah Mining Corporation is set to open a gold mine near Provo, Utah. According to the

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The Utah Mining Corporation is set to open a gold mine near Provo, Utah. According to the treasurer, Monty Goldstein, “This is a golden opportunity.” The mine will cost $3.8 million to open and will have an economic life of 11 years. It will generate a cash inflow of $625,000 at the end of the first year, and the cash inflows are projected to grow at 8 percent per year for the next 10 years. After 11 years, the mine will be abandoned. Abandonment costs will be $750,000 at the end of Year 11.

a. What is the IRR for the gold mine?

b. The Utah Mining Corporation requires a return of 13 percent on such projects.

Should the mine be opened?

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Corporate Finance

ISBN: 9781265533199

13th International Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe

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