Question

Bohrer Mining, Inc., is trying to evaluate a project with the following cash flows:

Year	Cash Flow
0	-$38,100,000
1	62,100,000
2	-11,100,000

a-1 What is the NPV for the project if the company requires a return of 10 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

a-2 Should the firm accept this project?

b. This project has two IRRs, namely ____?____ percent and ____?____ percent, in order from smallest to largest. (Note: If you can only compute one IRR value, you should input that amount into both answer boxes in order to obtain some credit.) (Do not round intermediate calculations. A negative answer should be indicated by a minus sign. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

NPV = Present value of Cash Inflows – Present Value of Cash Outflows

NPV of the project :

Year	Cash Flow	PVF@10%	PV
0	-38,100,000	1	-38,100,000
1	62,100,000	0.909	56,448,900
2	-11,100,000	0.826	-9,168,600
		NPV	+9,180,300

a-1 NPV = $9,180,300

a-2 The firm should accept the project, since NPV is positive.

b.IRR is the rate at which NPV = 0

Let r = 15%

NPV = -38,100,000 + 62,100,000*0.870 -11,100,000*0.756

=$7,535,400

Let r = 25%

NPV = 4476,000

At r = 35%, NPV = $1822,200

At r= 40%, NPV = 578,400

At r = 45%, NPV = -534,600
Therefore, IRR = 40% + 578,400/1113000 * 5

=42.60%