Your company is planning to open a new gold mine which will cost $3.0 million to build,with the expenditure occurring at the end of the year three years from today.The mine will bring year-end after-tax cash inflows of $2.0 million at the end of the two succeeding years,and then it will cost $0.5 million to close down the mine at the end of the third year of operation.What is this project's IRR?

Question

Quizplus · Accepted Answer

The IRR is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. To find the IRR of this project, we set up the equation based on the cash flows described:0 = -$3.0 million / (1 + IRR)^3 + $2.0 million / (1 + IRR)^4 + $2.0 million / (1 + IRR)^5 - $0.5 million / (1 + IRR)^6Solving this equation for IRR is complex and typically requires the use of financial calculators or software. The correct IRR that satisfies this equation is approximately 12.70%, making option D the correct answer.

Your Company Is Planning to Open a New Gold Mine