Calculating IRR The Utah Mining Corporation is set to open a gold mine near Provo, Utah. According to the treasurer, Monty Goldstein, "This is a golden opportunity." The mine will cost $1,400,000 to open and will have an economic life of 11 years. It will generate a cash inflow of $225,000 at the end of the first year and the cash inflows are projected to grow at 8 percent per year for the next 10 years. After 11 years, the mine will be abandoned. Abandonment costs will be $300,000 at the end of year 11.
a. What is the IRR for the gold mine?
b. The Utah Mining Corporation requires a 13 percent return on such undertakings. Should the mine be opened?