A mineral deposit estimated to contain 1,585,000 tonnes of ore has been delineated by Lee Mining Company. The Company has made an investment of $163,500,000 to recover the ore for a selling price of $401 per tonne. The Company has a minimum required rate of return of 21% on capital projects, an effective tax rate of 32%, and a depletion allowance of 11% of annual revenues. The ore is expected to be produced and sold at a rate of 291,000 tonnes per year and the operating expenses exclusive of depletion expenses are $49,000,000 per year. The Company uses the straight line depreciation method. Complete the following Table. Plot a graph of the internal rate of return (IRR) vs operating costs. Discuss your results.

 

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Sensitivity of Rate of Return (IRR) to Operating Costs for a Mining Project Var. From Exp Value (%) -40 -20 0 20 40 Operating Costs ($000,000) 49.00 Rate of Return (%) Sensitivity of Rate of Return (IRR) to Operating Costs for a Mining Project Var. From Exp Value (%) -40 -20 0 20 40 Operating Costs ($000,000) 49.00 Rate of Return (%)

Answer rating: 100% (QA)

ANSWER The IRR value can be found graphically by plotting the net present value NPV versus the disco... View the full answer