12. After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most cost-effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend $900,000 for new mining equipment and pay $165,000 for its installation. The mined gold will net the firm an estimated $350,000 each year for the 5-year life of the vein. CTC's cost of capital is 20%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. (using excel)
$ __
What is the project's IRR? Do not round intermediate calculations. Round your answer to two decimal places.
__%
(select one) yes or no
I. Environmental effects should be treated as
sunk costs.
II. Environmental effects could be added by
estimating penalties or any other cash outflows that might be
imposed on the firm to help return the land to its previous state
(if possible).
III. Environmental effects should be ignored since
they would have no effect on the project's profitability.
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