You own a coal mining company and are considering opening a new mine. The mine itself...

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You own a coal mining company and are considering opening a new mine. The mine itself will cost $117 million to open. If this money is spent immediately, the mine will generate $19 million for the next 10 years. After that, the coal will run out and the site must be cleaned and maintained at environmental standards. The cleaning and maintenance are expected to cost $1.7 million per year in perpetuity. What does the IRR rule say about whether you should accept this opportunity? (Hint: Consider the number of sign changes in the cash flows.) If the cost of capital is 8.1%, what does the NPV rule say? You own a coal mining company and are considering opening a new mine. The mine itself will cost $117 million to open. If this money is spent immediately, the mine will generate $19 million for the next 10 years. After that, the coal will run out and the site must be cleaned and maintained at environmental standards. The cleaning and maintenance are expected to cost $1.7 million per year in perpetuity. What does the IRR rule say about whether you should accept this opportunity? (Hint: Consider the number of sign changes in the cash flows.) If the cost of capital is 8.1%, what does the NPV rule say?

Answer rating: 100% (QA)

To determine whether the project is acceptable using the Internal Rate of Return IRR rule we need to ... View the full answer