Use the following information to answer the question(s)below.
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)0.
B)1.
C)2.
D)12.

Question

Quizplus · Accepted Answer

The project has two cash outflows (the initial investment and the restoration cost) and a series of inflows (the ore production). Therefore, there are two potential IRRs - one when the sum of the inflows equals the initial investment, and another when the sum of the inflows equals the initial investment plus the restoration cost. It is important to note that only one IRR can be the true rate of return for the project, and that rate should be compared to the company's required rate of return to determine whether or not the project should be pursued.

Use the Following Information to Answer the Question(s)below