Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are considering investing in a new gold mine in South Africa. Gold in South Africa is buried very deep, so the mine will require

image text in transcribed

You are considering investing in a new gold mine in South Africa. Gold in South Africa is buried very deep, so the mine will require an initial investment of $260 million. Once this investment is made, the mine is expected to produce revenues of $30 million per year for the next 20 years. It will cost $8.9 million per year to operate the mine. After 20 years, the gold will be depleted. The mine must then be stabilized on an ongoing basis, which will cost $4.8 million per year in perpetuity. Calculate the IRR of this investment. (Hint: Plot the NPV as a function of the discount rate.) The IRR of this investment is: (Select the best choice below.) A. The IRR is infinite as a result of the perpetuity. B. There are multiple IRRs. C. The IRR is about 11.8%. OD. No positive IRR exists since the NPV, calculated as a function of various discount rates, never equals or exceeds zero

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