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:

Buyers and Sellers

Participants in a market where buyers exchange money for goods or services provided by sellers.

Market Prices

The existing rate at which one can buy or sell an asset or service.

Profit-Seeking

The motivation or strategy of businesses and individuals to increase their financial gains or profits.

Property Rights

Legal rights to use, manage, and obtain benefits from a resource, property, or invention.