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 $ 2,400,000 to open and will have an economic life of 11 years. It will generate a cash inflow of $ 345,000 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 $ 400,000 at the end of year 11.
a. What is the IRR for the gold mine?
b. The Utah Mining Corporation requires a return of 10 percent on such undertakings. Should the mine be opened?