Maple Leaf Oil Corp. is a Canadian natural resources company. They are consideri

Question

Maple Leaf Oil Corp. is a Canadian natural resources company. They are considering buying the rights to a piece of land that has strong potential for gold production through surface extraction techniques. They project the following net cash flows ($ millions Canadian):

Year 1: $10

Year 2: $10

Year 3: $40

Year 4: $25

After year 4, the gold field will be played out and not profitable to continue mining. The purchase price for this land is $45 million Canadian. What would the annual rate of return be on this investment?

Explanation / Answer

The annual rate of return would be calculated as follows: Year Cash Flow 0 -45 1 10 2 10 3 40 4 25 Annual ROR 25.12% IRR(Values 0 to 4) So annual rate of return on this investment would be 25.12%

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