What does the irr rule say about whether you should accept

Reference no: EM133377016

Part 1

You own a coal mining company and are considering opening a new mine. The mine will cost $117.3 million to open. If this money is spent? immediately, the mine will generate $21.2 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? If the cost of capital is 7.9%?, what does the NPV rule? say?

Accept the opportunity because the IRR is greater than the cost of capital.

B. Reject the opportunity because the IRR is lower than the 7.9% cost of capital.

C. The IRR is r=11.43%?, so accept the opportunity.

D. There are two IRR?s, so you cannot use the IRR as a criterion for accepting the opportunity.

Part 2

The NPV using the cost of capital of 7.9% is ?$enter your response here million. ?(Round to three decimal? places.)

Part 3

The plot of the NPV as a function of the discount rate is ?n-shaped. It intersects the x?-axis at r=2.02% and r=11.43% What does the NPV rule? say? ?

(Select the best choice? below.)

A. Reject the project because the NPV is negative.

B. If the opportunity cost of capital is greater than r=11.43%?, the investment should be undertaken.

C. If the opportunity cost of capital is between r=2.02% and r=11.43%?, the investment should be undertaken.

D. If the opportunity cost of capital is less than r=2.02%?, the investment should be undertaken.

Reference no: EM133377016

Questions Cloud

Discuss how role of trust factors into financial services : Discuss how the role of trust factors into financial services for both consumers and businesses, and how those trust relationships have (or haven't) changed

Different resources the business : List at least three different resources the business uses and describe how you get those resources to the business.

What is the? npv : FIN 311 DePaul University It will generate two future? payments, one of? $8 million at the end of 2 years and one of ?$77 million at the end of 3 years

What can you say about cyclical unemployment rate : Assume that in a country at a given time, unemployment rate is 4% and natural rate of unemployment is 5%. What can you say about cyclical unemployment rate

What does the irr rule say about whether you should accept : What does the NPV rule? say - What does the IRR rule say about whether you should accept this? opportunity? If the cost of capital is 7.9%?, what does

Explain how nominal and real gdp will compare to each : Assume that 2011 prices are used in the calculation of real GDP in an economy. Assume also that this economy has negative inflation between 2011 and 2012.

Explain the legislation that introduced medicaid : Explain the legislation that introduced Medicaid. Your explanation should include a description of the funding sources for the program.

Organizations are recruiting diverse workforce : What do you think are the major reasons that more organizations are recruiting a diverse workforce?

Provide a brief explanation of your choice : Which bond would we purchase? Provide a brief explanation of your choice (no calculation needed). Please directly type your answer in the space

User Account

All Pages