1. Rearden Metals is considering opening a strip mining operation to provide some of the raw materials needed in producing Rearden metal. The initial purchase of the land and the associated costs of opening up mining operations will cost $100 million today. The mine is expected to generate $16 million worth of ore per year for the next 12 years. At the end of the 12th year Rearden will need to spend $20 million to restore the land to its original pristine nature appearance.
The payback period for Rearden's mining operation is closest to:
A) 5.00 years
B) 6.00 years
C) 6.25 years
D) 6.50 years
2. Which of the following statements is FALSE?
A) It is possible that an IRR does not exist for an investment opportunity.
B) If the payback period is less than a pre-specified length of time you accept the project.
C) The internal rate of return (IRR) investment rule is based upon the notion that if the return on other alternatives is greater than the return on the investment opportunity you should undertake the investment opportunity.
D) It is possible that there is no discount rate that will set the NPV equal to zero.