When calculating a payback period are costs that occur after the initial expense factored in?

There are special accounting rules for AROs - Asset Retirement Obligations. Essentially, an attempt to reflect the expense of the cost of returning the land (in your example) back to its original state AS that obligation occurs - i.e. over the useful life. I am going to assume you have not covered this "issue" in your class yet. So...

You could do one of two things: make an assumption that you set aside 1/12 of the $17m every year (this assumes this amount does not earn interest, but simply reduces the annual inflows), and then solve for payback period and/or IRR; or two, calc an IRR which has for its last cash flow: 13m inflow - 17mil outflow: net negative 4m cash flow. This gives an IRR of 4.77235%.

The first option makes your cash flows: 13m - (17/12=) 1,416,667 = $11,583,333 per year. And the payback period is: 107,000,000/11,583,333 = 9.237 years. IRR is: 4.27439% (Your real IRR would probably be higher because you would make assumptions about earnings on the funds set aside for the reclamation, thus less funds would need to be set aside, especially at the beginning, leaving more for cash flow, and w/ time value of money (more sooner is better) the IRR would increase.)

Hope I didn't confuse you....

Yes. Those future costs are real. They are usually adjusted to net present value, for accurate evaluation of the net present value of the project, and for payback. You could assume a cost for capital and for inflation.They are certainly not zero. Corporate capital costs are typically fairly high, like maybe 7 or 8% or even higher if the credit rating of the company is lower. Inflation averages closer to 3%, long term average.