Should Tangshan Mining Company Accept a New Project If Its

question 60

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 followed by 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:

Inflation Rate

The annual rate at which the cost of goods and services rises within an economy, reflecting a growth in price levels over time.

Price Level

An indicator of the mean cost of goods and services within an economy at a particular moment.

Money-Supply Curve

A graphical representation showing the relationship between the quantity of money supplied and the interest rate.

Open-Market Sale

The selling of government securities in the open market to reduce the money supply and control inflation.