Table 12.3 Tangshan Mining Company Is Considering Investment in One of Two

question 44

Multiple Choice

Table 12.3
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.
-Which project, M or N, would be preferable if both projects were of average risk as the overall firm and Tangshan Mining has a beta of 1.0? (See Table 12.3)

• A) Project M.
• B) Project N.
• C) They are equivalent.
• D) none of the above.

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Definitions:

Normal Good

A type of good for which demand increases as consumer income rises, reflecting goods that are more desirable as financial conditions improve.

Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity demanded by consumers at various prices.

Poultry Prices

The cost per unit of domesticated birds, such as chickens, turkeys, and ducks, used for meat or egg production.

Beef

Refers to the meat from cattle, often considered in economic terms for its role in the food industry, market dynamics, and trade.