Deep Mining and Precious Metals Are Separate Firms That Are

Multiple Choice

Deep Mining and Precious Metals are separate firms that are both considering a silver mining project. Deep Mining is in the actual mining business and has an aftertax cost of capital of 16.2 percent. Precious Metals is in the precious gem retail business and has an aftertax cost of capital of 13.4 percent. The project under consideration has initial costs of $950,000 and anticipated annual cash inflows of $165,000 a year for 12 years. Which firm(s) , if either, should accept this project?

A) Deep Mining only
B) Precious Metals only
C) Both Deep Mining and Precious Metals
D) Neither Deep Mining nor Precious Metals
E) Cannot be determined without further information