Problem $5-26$ Calculating IRR

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 $$3,500,000$ to open and will have an economic life of $11$

years. It will generate a cash inflow of $$455,000$ 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 $$510,000$ at the end of Year $11.$

a$.$ What is the IRR for the gold mine? $($Do not round intermediate calculations

and enter your answer as a percent rounded to $2$ decimal places, e$.$g$.,$

$32\mathrm{.}16.)$

IRR

b$.$ The Utah Mining Corporation requires a return of $9$ percent on such

projects. Should the mine be opened?

Yes

No