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After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most cost- effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend $900,000 for new mining equipment and pay $165,000 for its installation. The mined gold will net the firm an estimated $350,000 each year for the 5-year of the vein. CTC's cost of capital is 18%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. a. What is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest dollar. Use a minus sign to enter negative value, if $ What is the project's IRR? Do not round intermediate calculations. Round your answer to two decimal places. % b. Should this project be undertaken if environmental impacts were not a consideration? -Select- ▼ c. How should environmental effects be considered when evaluating this, or any other, project? I. Environmental effects should be ignored since they would have no effect on the project's profitability. II. Environmental effects should be treated as sunk costs. III. Environmental effects could be added by estimating penalties or any other cash outflows that might be imposed on the firm to help return the land to its previous state (if possible). -Select-

After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most cost- effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend $900,000 for new mining equipment and pay $165,000 for its installation. The mined gold will net the firm an estimated $350,000 each year for the 5-year of the vein. CTC's cost of capital is 18%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. a. What is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest dollar. Use a minus sign to enter negative value, if $ What is the project's IRR? Do not round intermediate calculations. Round your answer to two decimal places. % b. Should this project be undertaken if environmental impacts were not a consideration? -Select- ▼ c. How should environmental effects be considered when evaluating this, or any other, project? I. Environmental effects should be ignored since they would have no effect on the project's profitability. II. Environmental effects should be treated as sunk costs. III. Environmental effects could be added by estimating penalties or any other cash outflows that might be imposed on the firm to help return the land to its previous state (if possible). -Select-

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 12P: After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide...
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After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most cost- effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend $900,000 for new mining equipment and pay $165,000 for its installation. The mined gold will net the firm an estimated $350,000 each year for the 5-year of the vein. CTC's cost of capital is 18%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. a. What is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest dollar. Use a minus sign to enter negative value, if $ What is the project's IRR? Do not round intermediate calculations. Round your answer to two decimal places. % b. Should this project be undertaken if environmental impacts were not a consideration? -Select- ▼ c. How should environmental effects be considered when evaluating this, or any other, project? I. Environmental effects should be ignored since they would have no effect on the project's profitability. II. Environmental effects should be treated as sunk costs. III. Environmental effects could be added by estimating penalties or any other cash outflows that might be imposed on the firm to help return the land to its previous state (if possible). -Select-
Transcribed Image Text:After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most cost- effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend $900,000 for new mining equipment and pay $165,000 for its installation. The mined gold will net the firm an estimated $350,000 each year for the 5-year of the vein. CTC's cost of capital is 18%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. a. What is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest dollar. Use a minus sign to enter negative value, if $ What is the project's IRR? Do not round intermediate calculations. Round your answer to two decimal places. % b. Should this project be undertaken if environmental impacts were not a consideration? -Select- ▼ c. How should environmental effects be considered when evaluating this, or any other, project? I. Environmental effects should be ignored since they would have no effect on the project's profitability. II. Environmental effects should be treated as sunk costs. III. Environmental effects could be added by estimating penalties or any other cash outflows that might be imposed on the firm to help return the land to its previous state (if possible). -Select-
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