Rio Ferinand, the owner of Ferdinand Gold Mining, is evaluating a new gold mine in Fort McMurray. Paul Pogba, the company's geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for eight years, after which the gold would be completely mined.

Year. Cash Flow

0 -$650,000,000

1 63,000,000

2 85,000,000

3 125,000,000

4 145,000,000

5 175,000,000

6 150,000,000

7 95,000,000

8 75,000,000

9 -75,000,000

Paul has taken an estimate of the gold deposits to Julia Davids, the company's financial officer. Julia must perform an analysis of the new mine and present her recommendation on whether the company should open the new mine.

Julia has used Paul's estimate to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and annual operating expenses. If the company opens the mine, it will cost $650 million today, and it will have a cash outflow of 75 million nine years from today in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the table. Ferdinand Mining has a 12% required return on all its gold mines.

To perform the analysis, Julia needs to calculate the payback period, internal rate of return (IRR), and net present value (NPV) of the proposed mine.

Assume that you are Julia Davids. What would you suggest to Paul Pogba based on your analysis regarding the new gold mine? Whether should they take this project? Discuss why or why not?