Response to the following problem:
Andrew Coal Mining, Inc. is considering opening a strip mine, the cost of which is $8.8 million. Cash flows will be $55.4 million, all coming at the end of one year. The land must be returned to its natural state at a cost of $50 million, payable after two years.
Compute the IRR for this project. Should the project be accepted if required rate of return is 8 percent?
Should the project be accepted if the required rate of return is 14 percent? Explain your reasoning. At what costs of capital, the project is acceptable. Plot the graph of NPV for this project.