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Question 2 You own a gold mining company and are considering opening a new mine. The mine itself will cost $110 million to open. If
Question 2 You own a gold mining company and are considering opening a new mine. The mine itself will cost $110 million to open. If this money is spent immediately, the mine will generate $20 million for the next 10 years. After that, the gold will run out and the site must be cleaned and maintained at environmental standards. The cleaning and maintenance are expected to cost $2 million per year in perpetuity. a) What does the IRR rule say about whether you should accept this opportunity? If the opportunity cost of capital is 6%, what does the NPV rule say? Show your workings in an excel spreadsheet. Maximum 250 words (6 marks) Question 2 You own a gold mining company and are considering opening a new mine. The mine itself will cost $110 million to open. If this money is spent immediately, the mine will generate $20 million for the next 10 years. After that, the gold will run out and the site must be cleaned and maintained at environmental standards. The cleaning and maintenance are expected to cost $2 million per year in perpetuity. a) What does the IRR rule say about whether you should accept this opportunity? If the opportunity cost of capital is 6%, what does the NPV rule say? Show your workings in an excel spreadsheet
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