A Company Is Considering an Iron Ore Extraction Project That

question 37

Multiple Choice

A company is considering an iron ore extraction project that requires an initial investment of $1,400,000 and will yield annual cash inflows of $613,228 for three years. The company's discount rate is 9%. Calculate IRR. Present value of ordinary annuity of $1:
$$\begin{array} { | r | r | r | r | r | r | r | r | } \hline & 10 \% & 12 \% & 14 \% & 15 \% & 16 \% & 18 \% & 20 \% \\\hline 1 & 0.909 & 0.893 & 0.877 & 0.870 & 0.862 & 0.847 & 0.833 \\\hline 2 & 1.736 & 1.690 & 1.647 & 1.626 & 1.605 & 1.566 & 1.528 \\\hline 3 & 2.487 & 2.402 & 2.322 & 2.283 & 2.246 & 2.174 & 2.106 \\\hline 4 & 3.170 & 3.037 & 2.914 & 2.855 & 2.798 & 2.690 & 2.589 \\\hline\end{array}$$

• A) 15%
• B) 17%
• C) 14%
• D) 13%

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Definitions:

Monopoly Power

The ability of a single supplier in a market to control the price and supply of a product or service, often resulting in higher prices and limited choices for consumers.

Production Costs

Expenses incurred in the process of manufacturing or producing goods and services, including labor, materials, and overhead.

Economic Profits

The surplus remaining after deducting both the explicit and implicit costs from total revenues, often showcasing the true profitability of a firm beyond accounting profits.

Uninsurable Risks

Represent risks that insurance companies are not willing to cover due to their unpredictable nature or high likelihood of loss.