Question
Your team found that opening a new mine would require an investment of $1,300,000 today to purchase the land, obtain the required permits, and prepare
Your team found that opening a new mine would require an investment of $1,300,000 today to purchase the land, obtain the required permits, and prepare the mine for operations. Beyond this initial investment, the mine would also have annual operating expenses of $750,000 for the first five years and annual operating expenses of $250,000 each year after that. Your team has projected that the mining operations will bring in $400,000 in each of the first three years, $650,000 in each of the following three years, and $800,000 each year after that. Assume expenses are payable at the beginning of the year.
Assume earnings are received at the end of the year.The board of directors believes the mine will be productive for fifteen years. If this is the case, what is your projected IRR? If investors require an IRR of 5% will the board of directors accept or reject this project?
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