Alpha and Beta are separate firms that are both considering an oil exploration project. Alpha currently operates an oil refining and distribution network and has an after-tax cost of capital of 12 %. Beta owns oil fields and concentrates on oil production. Beta's after-tax cost of capital is 15 %. The project under consideration has initial costs of $150,000 and anticipated annual cash inflows of $32,000 a year for ten years. Which firm(s) should accept this project, if any?

Question

Quizplus · Accepted Answer

The project's NPV is positive for both Alpha and Beta, so both firms should accept the project.

Alpha and Beta Are Separate Firms That Are Both Considering