Table 11.8 Tangshan Mining Company Is Considering Investment in One of Two

question 159

Multiple Choice

Table 11.8
Tangshan Mining Company is considering investment in one of two mutually exclusive projects M and N which are described below.Tangshan Mining's overall cost of capital is 15 percent,the market return is 15 percent and the risk-free rate is 5 percent.Tangshan estimates that the beta for project M is 1.20 and the beta for project N is 1.40.
-Using the risk-adjusted discount rate method of project evaluation,the better investment for Tangshan Mining is ________.(See Table 11.8)

• A)Project M because it has a higher NPV
• B)Project N because it has a higher NPV
• C)Project N because it has a higher IRR
• D)Project M because it has a higher IRR

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Definitions:

Credit Availability

The ease with which individuals and businesses can obtain loans and other forms of credit from financial institutions.

Liquid Assets

Assets that can be quickly converted into cash with little impact on their value.

Consumption Rate

The proportion of income or resources that is spent on consumption rather than saving.

Savings Rate

The proportion of disposable income that is saved rather than spent on consumption, typically expressed as a percentage.