You buy a mining site, including exploration rights and there are set up costs of 285m. You expect to extract the following value of gold over the next 6 years, net of running costs: 41m, 74m, 123m, 90m, 55m and 20m. At the end of year 6 you pay 31m clean-up costs. The site will then be handed back to authorities (as worthless). Should you go ahead with the project? The cash flows are discounted at 7% p.a.

b) By using only linear interpolation or the Newton-Raphson method or the secant method (which you must code) determine the IRR of the project in (a).

c) Find the IRR for an investment that costs 96,000 today and pays 1028.61 at the end of the month for the next 60 months and then pays an additional 97,662.97 at the end of the 60th month if the investor discounts expected future cash flows monthly. You will once again have to do this iteratively.

d) Explain what is meant by the internal rate of return (IRR) in the context of project appraisal. What are the drawbacks of the IRR method?