You own a coal mining company and are considering opening a new mine. The mine itself will cost $116.1 million to open. If this money is spent immediately, the mine will generate $21.2 million for the next 10 years. After that, the 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 does the IRR rule say about whether you should accept this op the cost of capital is 8.2%, what does the NPV rule say? What does the IRR rule say about whether you should accept this opportunity? (Select the best choice below.) O A. There are two IRRS, so you cannot use the IRR as a criterion for accepting the opportunity. O B. Accept the opportunity because the IRR is greater than the cost of capital. O C. The IRR is r= 11.65%, so accept the opportunity. O D. Reject the opportunity because the IRR is lower than the 8.2% cost of capital. The NPV using the cost of capital of 8.2% is $ million. (Round to three decimal places.) The plot of the NPV as function of the discount rate isn shaped. It intersects the x-axis at r=2.10% and r= 11.65% What does the NPV rule say? (Select the best choice below.) O A. If the opportunity cost of capital is less than r= 2.10%, the investment should be undertaken. O B. If the opportunity cost of capital is greater than r= 11.65%, the investment should be undertaken. OC. If the opportunity cost of capital is between r= 2.10% andr=11.65%, the investment should be undertaken.
You own a coal mining company and are considering opening a new mine. The mine itself will cost $116.1 million to open. If this money is spent immediately, the mine will generate $21.2 million for the next 10 years. After that, the 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 does the IRR rule say about whether you should accept this op the cost of capital is 8.2%, what does the NPV rule say? What does the IRR rule say about whether you should accept this opportunity? (Select the best choice below.) O A. There are two IRRS, so you cannot use the IRR as a criterion for accepting the opportunity. O B. Accept the opportunity because the IRR is greater than the cost of capital. O C. The IRR is r= 11.65%, so accept the opportunity. O D. Reject the opportunity because the IRR is lower than the 8.2% cost of capital. The NPV using the cost of capital of 8.2% is $ million. (Round to three decimal places.) The plot of the NPV as function of the discount rate isn shaped. It intersects the x-axis at r=2.10% and r= 11.65% What does the NPV rule say? (Select the best choice below.) O A. If the opportunity cost of capital is less than r= 2.10%, the investment should be undertaken. O B. If the opportunity cost of capital is greater than r= 11.65%, the investment should be undertaken. OC. If the opportunity cost of capital is between r= 2.10% andr=11.65%, the investment should be undertaken.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 12P
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