Question: Given the following information, use two different methods to calculate the present value of a ton of coal to be received one year from now:

Given the following information, use two different methods to calculate the present value of a ton of coal to be received one year from now:

money rate of interest (m): 8% per annum expected rate of general price inflation (i): 6% per annum expected rate of increase in the price of coal (ic): 2% per annum current price of coal (P0): $25 per ton 1 i What is meant by the term “mutually exclusive projects”?

ii Explain why the IRR decision-rule could give the wrong result when comparing mutually exclusive projects.

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