1. Consider a gold mining operation with the following cash flows (in millions of dollars). Can IRR be used as a decision rule for the mine? Justify your response. O 1 2 Time CF (millions) -75 180 100 No, cash flows are not conventional, although project is independent. O Yes, project is independent and cash flows are conventional. No, project is not independent, although cash flows are conventional. MGM Mirage is considering the construction of a casino in Spokane at a cost of $4,000,000, anticipating cash flows from the casino of $950,000 annually for 10 years. A local casino is on the present site of where MGM would like to build the new casino. Can IRR be used as a decision rule for the casino? Justify your response. No, although cash flows are conventional, project is not independent. No, although project is independent, cash flows are not conventional. Yes, project is independent and cash flows are conventional. Consider a proposed candy shop with the following cash flows (in thousands of dollars). Can IRR be used as a decision rule for the shop? Justify your response. 0 1 2 Time -1 CF (millions) -15 -25 20 O No, cash flows are not conventional, although project is independent. Yes, project is independent and cash flows are conventional. No, project is not independent, although cash flows are conventional. Bestway Manufacturing Company is evaluating two forklift systems to use in its plant. The costs and expected cash flows from the two non-competing systems are shown below. Can IRR be used as a decision rule for the forklift systems? Justify your response. Year 0 Year 1 Year 2 Year 3 Clarkston Forklifts -3,000,000 980,000 1,360,000 2,100,000 Lewiston Forklifts -4,200,000 850,000 1,750,000 2,900,000 No, although projects are independent, cash flows are not conventional. Yes, cash flows are conventional and projects are independent. No, although cash flows are conventional, projects are no independent. What are the two conditions that must hold in order to use IRR as a valid decision rule for capital budgeting? Cash flows must not be conventional, and projects must be mutually exclusive. Cash flows must not be conventional, and projects must be independent. | 0 0 0 Cash flows must be conventional, and projects must be mutually exclusive. Cash flows must be conventional, and projects must be independent