A proposed strip mine would require the investment of $2 million at the beginning of the first year and a further investment of $3 million at the end of the first year. Mining operations are expected to yield annual year-end profits of $1 million starting in Year 2. The ore body will sustain 10 years of mining operations. At the end of the last year of operations, the mining company would also have to spend $1 million on environmental restoration. Would the project provide the mining company with a rate of return exceeding its 15% cost of capital? (Hint: The project will provide a rate of return exceeding the cost of capital if it has a positive NPV.)

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The Answer of A proposed strip mine would require the investment of $2 million at the beginning of the first year and a further investment of $3 million at the end of the first year. Mining operations are expected to yield annual year-end profits of $1 million starting in Year 2. The ore body will sustain 10 years of mining operations. At the end of the last year of operations, the mining company would also have to spend $1 million on environmental restoration. Would the project provide the mining company with a rate of return exceeding its 15% cost of capital? (Hint: The project will provide a rate of return exceeding the cost of capital if it has a positive NPV.)

A Proposed Strip Mine Would Require the Investment of $2