Question
The Utah Mining Co. is opened a new coal mine near Provo, Utah. The mine cost was $900,000 and has an economic life of 9
The Utah Mining Co. is opened a new coal mine near Provo, Utah. The mine cost was $900,000 and has an economic life of 9 years. It will generate cash inflow of $175,000 next year and will be equal over the life of the project. Abandonment cost will be $145,000 at the end of year 9. The cost of capital for the project is 10%. In year 2 an explosion occurred in the mine causing several injuries to workers. The company needed to compensate workers for a total of $250,000. The cost of repairing the mine and continuing it is $800,000. Assume that after the explosion and in order to continue with the project Utah mining could borrow money at 7.5%. Had the company decided to continue with the project, would the decision to continue with the project differ.
The NPV of the project changes and the investment does create wealth for the company. | ||
The borrowing rate is irrelevant to the decision.
| ||
The annual IRR changes and the investment does create wealth for the company. | ||
The annual IRR is still the same but the investment creates wealth for the company now. | ||
The annual IRR is irrelevant for the decision now |
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