A piece of land may be purchased for $610,000 to be strip-mined for the underlying coal. Annual net income will be $200,000 for 10 years. At the end of the 10 years, the surface of the land will be restored as required by a federal law on strip-mining. The reclamation will cost $1.5 million more than the resale value of the land after it is restored. Using a 10% interest rate, determine whether the project is desirable.
A piece of land may be purchased for $610,000 to be strip-mined for the underlying coal. Annual net income will be $200,000 for 10 years. At the end of the 10 years, the surface of the land will be restored as required by a federal law on strip-mining. The reclamation will cost $1.5 million more than the resale value of the land after it is restored. Using a 10% interest rate, determine whether the project is desirable.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 12P
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A piece of land may be purchased for $610,000 to be strip-mined for the underlying coal. Annual net income will be $200,000 for 10 years. At the end of the 10 years, the surface of the land will be restored as required by a federal law on strip-mining. The reclamation will cost $1.5 million more than the resale value of the land after it is restored. Using a 10% interest rate, determine whether the project is desirable.
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