Question: Strip Mining Inc. can develop a new mine at an initial cost of $5 million. The mine will provide a cash flow of $30 million

Strip Mining Inc. can develop a new mine at an initial cost of $5 million. The mine will provide a cash flow of $30 million in 1 year. The land then must be reclaimed at a cost of $28 million in the second year.

a. What are the IRRs of this project?

b. Should the firm develop the mine if the discount rate is 10%? 20%? 350%? 400%?

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