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A Coal mining project in West Virginia has been on line for 2 years. Engineering mine plan calculations indicate that the present mine production can

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A Coal mining project in West Virginia has been on line for 2 years. Engineering mine plan calculations indicate that the present mine production can be increased to the accelerated coal mining production schedule shown below, by changing the mine plan and acquiring additional new equipment. The project engineer has to decide whether to (1) maintain current production rates, or (2) accelerate production by purchasing the additional mining equipment necessary to increase coal production. The time 0 cost of the accelerated coal mining production equipment is estimated at $7 million with operating costs of $2.5 million more a year relative to the current operation. Working interest is 100%, net revenue after royalties is 80%, and coal price per ton is $44.00. Assume escalation of incremental operating expenses exactly offsets escalation of incremental revenues. Is it economically desirable to maintain present coal mining production rates or to accelerate production? The minimum acceptable before-tax ROR is 15%

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