Colorado Mining, Inc. and Tanzania Exploration, Ltd. are separate firms that are
ID: 2627400 • Letter: C
Question
Colorado Mining, Inc. and Tanzania Exploration, Ltd. are separate firms that are both considering a new gold exploration project. Colorado Mining is in the actual gold mining business and has an after-tax cost of capital of 9.8 percent. Tanzania Exploration is in the precious gem retail business and has an after-tax cost of capital of 8.4 percent. The project under consideration has initial costs of $675,000 and anticipated annual cash inflows of $82,000 a year for ten years. Which firm(s), if either, should accept this project?
both Colorado Mining and Tanzania Exploration
neither Colorado Mining nor Tanzania Exploration
Colorado Mining only
Tanzania Exploration only
cannot be determined without further information
Explanation / Answer
Both Colorado Mining and Tanzania Exploration can accept this project.