A proposed gold mine would require the investment of $2.65 million at the beginning of the first year and a further investment of $4.6 million at the end of the first year. Mining operations are expected to yield annual year-end profits of $2 million starting in year three. The mine will sustain eight years of mining operations, once it reaches profit. At the end of the last year of operations, the mining company would also have to spend $2 million on environmental restoration. Would the project provide the mining company with a rate of return exceeding its 12% cost of capital? If the rate of return was 8%, how much more/less would the NPV be? Multiple Choice Yes, $769,255 More $1,498,732 No, $519,255 Less $1,498,732 Yes, $519,255 Less $1,498,732 Yes, $519,255 More $1,923,732 Yes, $519,255 More $1,498,732

A proposed gold mine would require the investment of $2.65 million at the beginning of the first year and a further investment of $4.6 million at the end of the first year. Mining operations are expected to yield annual year-end profits of $2 million starting in year three. The mine will sustain eight years of mining operations, once it reaches profit. At the end of the last year of operations, the mining company would also have to spend $2 million on environmental restoration. Would the project provide the mining company with a rate of return exceeding its 12% cost of capital? If the rate of return was 8%, how much more/less would the NPV be? Multiple Choice Yes, $769,255 More $1,498,732 No, $519,255 Less $1,498,732 Yes, $519,255 Less $1,498,732 Yes, $519,255 More $1,923,732 Yes, $519,255 More $1,498,732

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Description: A proposed gold mine would require the investment of $2.65 million at the beginning of the first year and a further investment of $4.6 million at the end of the first year. Mining operations are expectedto yield annual year-end profits of $2 million

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 12P

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