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

Question

You own a coal mining company and are considering opening a new mine. The mine will cost $115.7 million to open. If this money is spent immediately, the mine will generate $20.1 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 $1.9 million per year in perpetuity. What doos the IRR rule say about whether you should accept this opportunity? If the cost of capital is 8.3%, what does the NPV rule say? NPV of the Investment in the Coal Mine 21 15 20 ·1 Discount Rate (%) What does the IRR rule say about whether you should accept this opportunity? (Select the best choice below.)

Explanation / Answer

The NPV method can be used for projects with non-normal cash flows. In that cases, there is no dilemma about which IRR is better.

conclusion

correct answer : -

Option D There are two Two IRRs, so you cannot use the IRR as criterion for accepting the opportunity

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