Should Tangshan Mining Company Accept a New Project If Its

question 148

Multiple Choice

Should Tangshan Mining company accept a new project if its maximum payback is 3.25 years and its initial after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2, $700,000 in year 3, and $1,800,000 in year 4?

• A) Yes, since the payback period of the project is less than the maximum acceptable payback period.
• B) No, since the payback period of the project is more than the maximum acceptable payback period.
• C) Yes, since the risk exposure of the project is less than the maximum acceptable risk exposure.
• D) No, since the risk exposure of the project is more than the maximum acceptable risk exposure.

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Definitions:

Negative Externality

An economic situation where a third party is negatively affected by the actions of others, typically not reflected in the cost of those actions, such as pollution.

Common-Resource Problem

A dilemma in the management of resources that are available to all but are susceptible to overuse and depletion because they are not excludable.

Nontoll Roads

Public roads that can be used without paying a fee, financed by taxes rather than direct user charges.

Public Goods

Products or services that are non-excludable and non-rivalrous, meaning they can be consumed by one person without preventing simultaneous consumption by others.