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Current expectations are that the deposit will require 2 years of development

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Suppose that a mining operation has spent $8 million developing

an ore deposit in South America. Cur 1 answer below » Suppose that a mining operation has spent $8 million developing

an ore deposit in South America. Current expectations are that the

deposit will require 2 years of development and will result in a

realizable cash flow of $10 million at that time. The company

engineer has discovered a new way of extracting the ore in only 1

year, but the procedure would necessitate an immediate outlay of $1

million. Required: Compute the IRR for the new outlay. ( Note: There are two solutions! One is 787%. Find the other one.) Based on your answer to (a), use the IRR criterion to determine

if the company should View complete question » Suppose that a mining operation has spent $8 million developing

an ore deposit in South America. Current expectations are that the

deposit will require 2 years of development and will result in a

realizable cash flow of $10 million at that time. The company

engineer has discovered a new way of extracting the ore in only 1

year, but the procedure would necessitate an immediate outlay of $1

million. Required: Compute the IRR for the new outlay. ( Note: There are two solutions! One is 787%. Find the other one.) Based on your answer to (a), use the IRR criterion to determine

if the company should make the outlay. Assume the market interest

rate is 15% on 1- and 2-year bonds. View less » Aug 05 2015 10:37 AM


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