The following is some additional information regarding the Seafield Resources’

| June 8, 2016

Question
The following is some additional information regarding the Seafield Resources’ mining opportunity mentioned in the chapter opener.

Seafield’s cost of capital: 10%

Initial Cost: $83.6 million

Project life: 12 years

Cash flow in years 1-2: $18.8 million

a. The chapter opener reported that the project had an NPV of $66 million and an internal rate of return of 20%. From those two facts alone, what can you conclude about Seafield’s cost of capital? (Hint: Is it more than or less than 20%?)
b. Given the information above about the project’s initial cost and subsequent cash flows as well as the information from part a, can you estimate Seagate’s cost of capital?

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