Problem

Dakota Mining Dakota Mining is considering operating a strip mine, the cost of which is...

Dakota Mining

Dakota Mining is considering operating a strip mine, the cost of which is $4.4 million. Cash returns will be $27.7 million, all received at the end of the first year. The land must be returned to its natural state at a cost of $25 million, payable after two years. What is the project’s internal rate of return?

Required:

a. Should the project be accepted if the market rate of return is 8 percent?

b. If the market rate of return is 14 percent?

Explain your reasoning.

SOURCE: R. Watts.

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Solutions For Problems in Chapter 3