A mining company is deciding whether to open a strip mine, which costs $2 million. Cash inflows of $13 million could occur at the end of Year 1. The land must be returned to its natural state at a cost of $12 million, payable at the end of Year 2.

a. Plot the project’s NPV profile

b. Should the project be accepted if WACC= 20%? Explain your reasoning.

c. Think of some other capital budgeting situations in which negative cash flows during or at the end of the project’s life lead to multiple IRRs

d. What is the projects MIRR at WACC=10%? At WACC=20%? Does MIRR lead to the same accept/ reject decision as NPV? (hint: Consider mutually exclusive projects that differ in size)