Maple Leaf Oil Corp. is a Canadian natural resources company. They are considering buying the rights...
Maple Leaf Oil Corp. is a Canadian natural resources company. They are considering buying the rights to a piece of land that has strong potential for gold production through surface extraction techniques. They project the following net cash flows ($ millions Canadian):
- Year 1: $5
- Year 2: $15
- Year 3: $30
- Year 4: $20
After year 4, the gold field will be played out and not profitable to continue mining. The purchase price for this land is $40 million Canadian. What would the annual rate of return be on this investment?
Homework Answers
The annual rate of return for the investment would be the Internal Rate of Return (IRR) which can be calculated using the given cash flows and the IRR() function.
CF0 = -40; CF1 = 5; CF2 = 15; CF3 = 30; CF4 = 20
IRR (or annual rate of return) = 21.70%
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