Apex Mining Company is considering reopening a copper mine in Mauritania. The
following data set was obtained for the two options that can be employed by Apex Mining
Company in the extraction of copper:
Year Cash Flow for Deep
Mining (£ Millions)
Cash Flow for Open-Pit Mining
(£ Millions)
0 -60 -120
1 +20 +40
2 +40 +70
3 +50 +90
4 +30 +50
5 -15 -30
Both options have substantial cash flows at the end of the fifth year, since machinery has
to be decommissioned and land must be returned to ’green field’ status. The newly
appointed financial director of Apex Mining Company has decided to replace internal rate
of return with modified internal rate of return for investment appraisals within the
company. Further, the company’s cost of capital is 10%.
i) Calculate modified internal rate of return for open cast and deep mine methods.
(4 marks)
ii) Account for the implications of using modified internal rate of return as a mining
option. (4 marks