Dragline and conveyor system

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Reference no: EM131809243

A coal deposit can be mined more rapidly if a third dragline and conveyor system is added. The initial cost would be $1.5M. Annual revenues for each of the next 12 years would increase from $800K to $1200K, and then for the next 6 years, revenues would drop from $800K to $0. Thus, the mining is 50% faster, and the deposit is depleted 6 years earlier. The system will have no salvage value. What roots are there for the PW equation? Is there a meaningful IRR? Is the third dragline economically attractive if i is 20%? Graph the PW for interest rates of 0% to 100%?

(Answer: roots are 7.23% and 19.20%)

Reference no: EM131809243

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