Calculating IRR Moshi Mining is set to open a gold mine in northern Tanzania. The mine will cost 6 million rand to open and will have an economic life of 12 years. It will generate a cash inflow of 1 million rand at the end of the first year, and the cash inflows are projected to grow at 10 per cent per year for the next 11 years.

After 12 years, the mine will be abandoned. Abandonment costs will be 500,000 rand at the end of year 12.

(a) What is the IRR for the gold mine?

(b) Moshi Mining requires a 10 per cent return on such undertakings. Should the mine be opened?