Ayx is considering opening a new mine. The first option is a top of the line high efficiency mine with a cost of $20 million. This mine will generate cash flows of $7 million per year for the next six years. At the end of the sixth year, Ayx will have to reclaim the land around the new mine at a cost of $14 million. The second option is an economy mine that will generate $4 million in cash flows for the next six years, but require no land reclamation. This mine costs $15 million. If Ayx estimates its cost of capital to be 11.2%, which project should it accept? Why? O Accept high efficiency mill: NPV $2.04 mil vs $1.83 mil Accept high efficiency mill: NPV $9.44 mil vs $1.83 mil O Accept economy mill: NPV $9.00 mil vs. $-4.56 mil Accept economy mill; NPV $9.00 mil vs. $8.00 mil

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Ayx is considering opening a new mine. The first option is a top of the line high efficiency mine with a cost of $20 million. This
mine will generate cash flows of $7 million per year for the next six years. At the end of the sixth year, Ayx will have to reclaim
the land around the new mine at a cost of $14 million. The second option is an economy mine that will generate $4 million in
cash flows for the next six years, but require no land reclamation. This mine costs $15 million. If Ayx estimates its cost of
capital to be 11.2%, which project should it accept? Why?
O Accept high efficiency mill: NPV $2.04 mil vs $1.83 mil
Accept high efficiency mill: NPV $9.44 mil vs $1.83 mil
O Accept economy mill: NPV $9.00 mil vs. $-4.56 mil
Accept economy mill; NPV $9.00 mil vs. $8.00 mil
Transcribed Image Text:Ayx is considering opening a new mine. The first option is a top of the line high efficiency mine with a cost of $20 million. This mine will generate cash flows of $7 million per year for the next six years. At the end of the sixth year, Ayx will have to reclaim the land around the new mine at a cost of $14 million. The second option is an economy mine that will generate $4 million in cash flows for the next six years, but require no land reclamation. This mine costs $15 million. If Ayx estimates its cost of capital to be 11.2%, which project should it accept? Why? O Accept high efficiency mill: NPV $2.04 mil vs $1.83 mil Accept high efficiency mill: NPV $9.44 mil vs $1.83 mil O Accept economy mill: NPV $9.00 mil vs. $-4.56 mil Accept economy mill; NPV $9.00 mil vs. $8.00 mil
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