Deep Mining and Precious Metals Are Separate Firms That Are

question 47

Multiple Choice

Deep Mining and Precious Metals are separate firms that are both considering a silver exploration project.Deep Mining is in the actual mining business and has an aftertax cost of capital of 12.8 percent.Precious Metals is in the precious gem retail business and has an aftertax cost of capital of 10.6 percent.The project under consideration has initial costs of $575,000 and anticipated annual cash inflows of $102,000 a year for ten years.Which firm(s) ,if either,should accept this project?

• A)Company A only
• B)Company B only
• C)both Company A and Company B
• D)neither Company A or Company B
• E)cannot be determined without further information

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Definitions:

M/M/S

A model used in queueing theory representing a system with multiple servers where arrivals and service times are Poisson distributed and exponentially distributed, respectively.

Average Time

The mean value that represents the central tendency of a set of times, often used to summarize the typical amount of time required for a process.

Utilization Factor

A measure that assesses how effectively a production resource is used, typically comparing actual output to maximum possible output.

Poisson Distribution

A statistical probability distribution that expresses the probability of a given number of events occurring in a fixed interval of time or space when these events occur with a known constant mean rate and independently of the time since the last event.