Rio Tinto is planning a strip-mining project that costs $90,000 initially and generates the following cash flows: Year 1: $131,000 Year 2: $98,980 Year 3: -$147,650 Cash flow in Year 3 will be spent to restore the terrain, hence it is negative. The required return is 13.5%. Which of the following statements would you most agree with? Accept the project since it is a good investment. Reject the project since it returns 10.09%, which is lower than 13.5% o Reject the project since it does not break even if we ignore discounting At a discount rate of 41.092%, the present value of future cash flows is close to $90,000. Hence the breakeven rate is very high (compared to 13.5%). So, we should accept it. When cash flow signs change more than once, it is tricky to reach a definitive conclusion. It is too risky to accept the project in such situations