Calculating IRR The Utah Mining Corporation is set to open a gold mine near Provo, Utah. According

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Calculating IRR The Utah Mining Corporation is set to open a gold mine near Provo, Utah.

According to the treasurer, Monty Goldstein, “This is a golden opportunity.” The mine will cost $600,000 to open and will have an economic life of 11 years. It will generate a cash infl ow of $100,000 at the end of the fi rst year, and the cash infl ows are projected to grow at 8 percent per year for the next 10 years. After 11 years, the mine will be abandoned. Abandonment costs will be $50,000 at the end of year 11.

a. What is the IRR for the gold mine?

b. The Utah Mining Corporation requires a 10 percent return on such undertakings. Should the mine be opened? LO.1

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