medium · CFA Level I corp
Ironvale Mining is evaluating a project with unconventional cash flows: an initial investment of $1,000, followed by a payoff of 2,500 in Year 1, and a mandatory site restoration cost of 1,560 in Year 2. If the firm finds IRRs of 20% and 30%, which decision rule should be prioritized? Ironvale Mining is evaluating a project with unconventional cash flows: an initial investment of $1,000, followed by a payoff of 2,500 in Year 1, and a mandatory site restoration cost of 1,560 in Year 2.
- Accept if the average IRR (25%) exceeds the cost of capital.
- Accept if the NPV at the required rate is positive.
- Always reject unconventional projects.
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