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 $3,400,000 to open and will have an economic life of 11 years. It will generate a cash inflow of $445,000 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 $500,000 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? multiple choice YesNo

Step1: What is the Internal rate of return(IRR) IRR is regarded as one of the most important…

Answered: The Utah Mining Corporation is set to…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 12P

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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 $3,400,000 to open and will have an economic life of 11 years. It will generate a cash inflow of $445,000 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 $500,000 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?

	multiple choice

Yes
No

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