Question

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 $2,500,000 to open and will have an economic life of 11 years. It will generate a cash inflow of $355,000 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 $410,000 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., 32.16.)

b. The Utah Mining Corporation requires a return of 8 percent on such undertakings. Should the mine be opened?

Answer 1