Question

Bohrer Mining, Inc., is trying to evaluate a project with the following cash flows:

Year	Cash Flow
0	–$	39,600,000
1		63,600,000
2	–	12,600,000

a-1 What is the NPV for the project if the company requires a return of 12 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV           $

a-2 Should the firm accept this project?

No

Yes

b. This project has two IRRs, namely_____ percent and ______percent, in order from smallest to largest. (Note: If you can only compute one IRR value, you should input that amount into both answer boxes in order to obtain some credit.) (Do not round intermediate calculations. A negative answer should be indicated by a minus sign. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

a-1.

NPV of Project,

Required Rate = 12%

$NPV = -Initial Investment +\sum_{t=1}^{t} C_{t}/(1+r)^t$

NPV = $7,141,071.43

a-2.

Firm should accept the project as it's NPV is positive.

b.

IRR is calculated by putting NPV = 0 and calculating for r,

IRR = 37.459%