Ricky Sadovnik, a geologist, discovered a deposit of decorative stone during a holiday in Scotland. He wants to establish a quarry to extract the stone and sell it to gardeners. The owner of the land is prepared to allow him to open and operate a quarry on the site for five years for a fee of £150,000. In addition he must landscape the site at the end of the period, at a cost of £50,000. Ricky intends to hire the digging equipment for the quarry. The net cash flows from the sale of the stone are predicted to be:
(a) Determine the net present value for this project based on a discount rate of 15%.
(b) Find the net present value using a discount rate of 10% and by comparing this figure to your answer to (a) estimate the internal rate of return for the project.