Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Healthcare Finance An Introduction To Accounting And Financial Management

Authors: Louis C. Gapenski

5th Edition

1567934250, 978-1567934250

More Books

Students also viewed these Finance questions

Question

Outline Aquinass methodology.

Answered: 1 week ago

Question

Explain why you agree or disagree with this statement.

Answered: 1 week ago