A mining company is deciding whether to open a strip mine, which cost $2 million.

| September 2, 2016

Question
A mining company is deciding whether to open a strip mine, which cost $2 million. Cash inflows of $13 million would occur at the end of Year 1. The land must be returned to it natural state at a cost of $12 Million, payable at the end of Year 2.

A) Plot the projects NPV Profile

B) Should the project be accepted if WACC=10%? If WACC=12%?

C) Think of some other capital budgeting situations in which negative cash flows during or at the end of the projects life might lead to multiple IRR’s.

D) What is the projects MIRR at WACC=10%? At WACC=20%? Does MIRR lead to the same accept/reject decision for this project as the NPV method? Does the MIRR method always lead to the same accept/reject decision as NPV?

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