You are considering investing in a new gold mine in South Africa. Gold in South Africa is buried very? deep, so the mine will require an initial investment of $270 million. Once this investment is? made, the mine is expected to produce revenues of $30 million per year for the next 20 years. It will cost $9.4 million per year to operate the mine. After 20 ?years, the gold will be depleted. The mine must then be stabilized on an ongoing? basis, which will cost $4.9 million per year in perpetuity. Calculate the IRR of this investment.
?(?Hint: Plot the NPV as a function of the discount? rate.)
The IRR of this investment? is:
A. The IRR is about 11.1%.
B. There are multiple IRRs.
C. The IRR is infinite as a result of the perpetuity.
D. No positive IRR exists since the NPV?, calculated as a function of various discount? rates, never equals or exceeds zero.