You are considering constructing a new plant in a remote wilderness area to process the ore from a planned mining operation. You anticipate that the plant will take a year to build and cost

$ 102

million upfront. Once built, it will generate cash flows of

$ 13

million per year starting two years from today. In

21

years, after its

20

th

year of operation, the mine will run out of ore and you expect to pay

$ 158

million to shut the plant down and restore the area to its pristine state. Using a cost of capital of

13 %

:

a. What is the NPV of the project?

b. Is using the IRR rule reliable for this project? Explain.

c. What are the IRRs of this project?

Question content area bottom

Part 1

a. What is the NPV of the project?

The NPV of the project is

$enter your response here

million. (Round to one decimal place.)

Part 2

b. Is using the IRR rule reliable for this project? Explain.(Select the best choice below.)

A.

Yes, the IRR rule is reliable, because the project has a negative net present value.

B.

Yes, the IRR rule is reliable, because the project has a negative cash flow that comes after the positive ones.

C.

No, the IRR rule is not reliable, because the project has a negative cash flow that comes after the positive ones.

D.

No, the IRR rule is not reliable, because the project has a negative net present value.

Part 3

c. What are the IRRs of this project?

The IRRs of this project in ASCENDING order are

enter your response here

%

and

enter your response here

%.

(Round to two decimal places.)