After discovering a new gold vein in the Colorado mountains, CTC Mining Corporat

Question

After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to mine the deposit. The most cost-effective method of mining gold is sulfuric acid extraction, a process that results in environmental damage. Before proceeding with the extraction, CTC must spend $900,000 for new mining equipment and pay $165,000 for its installation. The gold mined will net the firm an estimated $350,000 each year over the 5-year life of the vein. CTC's cost of capital is 17%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. a.What is the project's NPV? Round your answer to the nearest dollar. $ What is the project's IRR? Round your answer to two decimal places.

Explanation / Answer

Hi, Please find the answer as follows: NPV = -900000 - 165000 + 350000/(1+.17)^1 + 350000/(1+.17)^2 + 350000/(1+.17)^3 + 350000/(1+.17)^4 + 350000/(1+.17)^5 = 54771.16 IRR = 19% Thanks.

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