Alpha and Beta Are Separate Firms That Are Both Considering

question 319

Multiple Choice

Alpha and Beta are separate firms that are both considering an oil exploration project. Alpha currently operates an oil refining and distribution network and has an after-tax cost of capital of 12 %. Beta owns oil fields and concentrates on oil production. Beta's after-tax cost of capital is 15 %. The project under consideration has initial costs of $150,000 and anticipated annual cash inflows of $32,000 a year for ten years. Which firm(s) should accept this project, if any?

• A) Alpha only.
• B) Beta only.
• C) Both Alpha and Beta.
• D) Neither Alpha nor Beta.
• E) Cannot be determined without further information.

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