Have a Question ?

Home / Answered Questions / Other / you-are-considering-constructing-a-new-plant-in-a-remote-wilderness-area-to-process-the-ore-from-a-p-aw732

(Solved): You Are Considering Constructing A New Plant In A Remote Wilderness Area To Process The Ore From A P...


You are considering constructing a new plant in a remote wilderness area to process the ore from a planned mining operation.

You are considering constructing a new plant in a remote wilderness area to process the ore from a planned mining operation. You anticipate that the plant will take a year to build and cost $95 million upfront. Once built, it will generate cash flows of $14 million at the end of every year over the life of the plant. The plant will be useless 20 years after its completion once the mine runs out of ore. At that point you expect to pay $185 million to shut the plant down and restore the area to its pristine state. Using a cost of capital of 11% a. What is the NPV of the project? b. Is using the IRR rule reliable for this project? Explain. c. What are the IRRs of this project?


We have an Answer from Expert View Expert Answer

Expert Answer


a) NPV of the project is calculated as follows: Year CF Discount Factor Discounted CF 0 $ -95.00 1/(1+0.11)^0= 1 1*-95= -95.00 1 $ 14.00 1/(1+0.11)^1= 0.900900901 0.90090090090090
We have an Answer from Expert
Buy This Answer $6

-- OR --

Subscribe To View Unlimited Answers
Subscribe $20 / Month