After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to

Question:

After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most costeffective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend $900,000 for new mining equipment and pay $165,000 for its installation. The gold mined will net the firm an estimated $350,000 each year for the 5-year life of the vein. CTC’s cost of capital is 14%. For the purposes of this problem, assume that the cash inflows occur at the end of the year.

a. What are the project’s NPV and IRR?

b. Should this project be undertaken if environmental impacts were not a consideration?

c. How should environmental effects be considered when evaluating this, or any other, project? How might these concepts affect the decision in part b?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...