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8 Feb 2019
b. Luke Coal Mining, Inc. is considering opening a strip mine, the cost of which is $4.4 million. Cash flows will be $27.7 million, all coming at the end of one year. The land must be returned to its natural state at a cost of $25 million, payable after two years. Compute the IRR for this project. Should the project be accepted if required rate of return is 8 percent? Should the project be accepted if the required rate of return is 14 percent? Explain your reasoning.
b. Luke Coal Mining, Inc. is considering opening a strip mine, the cost of which is $4.4 million. Cash flows will be $27.7 million, all coming at the end of one year. The land must be returned to its natural state at a cost of $25 million, payable after two years. Compute the IRR for this project. Should the project be accepted if required rate of return is 8 percent? Should the project be accepted if the required rate of return is 14 percent? Explain your reasoning.
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Deanna HettingerLv2
9 Feb 2019