You own a coal mining company and are considering opening a new mine. The mine itself will cost $120 million to open. If this money is spent​ immediately, the mine will generate $22 million for the next 10 years. After​ that, the coal will run out and the site must be cleaned and maintained at environmental standards. The cleaning and maintenance are expected to cost $1.8 million per year in perpetuity. What does the IRR rule say about whether you should accept this​ opportunity? ​(Hint​: Consider the number of sign changes in the cash​ flows.) If the cost of capital is 7.6%​, what does the NPV rule​ say? Question content area bottom Part 1) What does the IRR rule say about whether you should accept this​ opportunity? ​ (Select the best choice​ below.) A. Accept the opportunity because the IRR is greater than the cost of capital. B. There are two​ IRRs, so you cannot use the IRR as a criterion for accepting the opportunity. C. Reject the opportunity because the IRR is lower than the 7.6% cost of capital. D. The IRR is 11.88%​, so accept the opportunity.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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H2. .  Time remaining: 00:09:29 Finance You own a coal mining company and are considering opening a new mine. The mine itself will cost $120 million to open. If this money is spent​ immediately, the mine will generate $22 million for the next 10 years. After​ that, the coal will run out and the site must be cleaned and maintained at environmental standards. The cleaning and maintenance are expected to cost $1.8 million per year in perpetuity. What does the IRR rule say about whether you should accept this​ opportunity? ​(Hint​: Consider the number of sign changes in the cash​ flows.) If the cost of capital is 7.6%​, what does the NPV rule​ say? Question content area bottom Part 1) What does the IRR rule say about whether you should accept this​ opportunity? ​ (Select the best choice​ below.) A. Accept the opportunity because the IRR is greater than the cost of capital. B. There are two​ IRRs, so you cannot use the IRR as a criterion for accepting the opportunity. C. Reject the opportunity because the IRR is lower than the 7.6% cost of capital. D. The IRR is 11.88%​, so accept the opportunity.
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