Should Tangshan Mining Company Accept a New Project If Its

question 20

Multiple Choice

Should Tangshan Mining company accept a new project if its maximum payback is 3.5 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.
• B) No.
• C) It depends.
• D) None of the above.

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Definitions:

Discount Rate

In finance, the interest rate used to discount future cash flows of a financial instrument to present value, reflecting the opportunity cost of capital.

Payments

The act of transferring money or value from one party to another in exchange for goods, services, or to fulfill a legal obligation.

Years

Units of time measuring 365 days (or 366 in a leap year), often used to track age, duration, or periods of investment.

Effective Annual Rate

The interest rate on a loan or financial product restated on an annual basis, accounting for compounding over the term.