After discovering a new gold vein in the Colorado Mountains CTC Mining Corporation must decide whether to

Question:

After discovering a new gold vein in the Colorado Mountains CTC Mining Corporation must decide whether to mine the deposit. The most cost-effective method of mining gold is sulfuric acid extraction, a process that results in environmental damage. To go ahead with the extraction, CTC must spend $900,000 for new mining equipment and pay $165,000 for its installation. The gold mined will net the firm an estimated $350,000 each year over the 5-year life of the vein. CTC’S cost of capital is 14 percent. For the purposes of this problem, assume that the cash inflows occur at the end of the year.

a. What are the NPV and IRR of this project?

b. Should this project be undertaken, ignoring environmental concerns?

c. How should environmental effects be considered when evaluating this, or any other, project? How might these effects change your decision in part b?

Corporation
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Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...