Suppose your firm is planning to undertake a mining project. The initial investment is $50 million,...

Suppose your firm is planning to undertake a mining project. The initial investment is $50 million, for the next two years the firm expects cash flows of $51 million and $47 million respectively. It will then cost the firm $17 million a year for the next three years to restore the mine site back to its original state. How many IRRs does this investment have and what are they? Group of answer choices Number of IRRs = 1; IRR = 8.23% Number of IRRs = 3; IRR 1 = 9.50%; IRR 2 = 15.00%; IRR 3 = 20.00% Number of IRRs = 2; IRR 1 8.23%; IRR 2 = 22.45% Number of IRRs = 1; IRR =22.45%

Expert Solution

This is the case of Non-conventional cash flows that have non-continuous streams of net cash outflows and net cash inflows, i.e. net cash outflows may occur at the start of the project, followed by net cash inflows, followed by further net cash outflows

Number of IRR = Number of sign changes

Here there were two sign changes

one from outflow to inflow (- to + )

inflow to outflow ( + to - )

Hence, there would be two IRR for this project.

IRR1 = 8.234%

IRR2 = 22.446% (Please check below table for irr calculation)

jeff jeffy answered 1 year ago

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