contestada

Rearden Metals is considering opening a strip mining operation to provide some of the raw materials needed in producing Rearden metal. The initial purchase of the land and the associated costs of opening up mining operations will cost $100 million today. The mine is expected to generate $16 million worth of ore per year for the next 12 years. At the end of the 12th year Rearden will need to spend $20 million to restore the land to its original pristine nature appearance.


The number of potential IRRs that exist for Rearden's mining operation is equal to:
A) 2
B) 1
C) 0
D) 12

Respuesta :

Answer:

A) 2

Explanation:

The correct answer is 2. Rearden Metals will have 2 IRRs for its strip mining operation. The first Internal Rate of Return (IRR) will be calculated based on cash outflow at year 0 and cash inflows from year 1 to 12. Then the Modified Internal Rate of Return (MIRR) is calculated because there is an additional cash outflow at year 12 which is required to restore the land to its original appearance.

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