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Company A and Company B are separate firms that are both considering a diamond exploration project. Company A is in the precious gem mining business
Company A and Company B are separate firms that are both considering a diamond exploration project. Company A is in the precious gem mining business and has an after-tax cost of capital of 13 percent. Company B is in the precious gem retail business. Company B's after-tax cost of capital is 10 percent. The project under consideration has initial costs of $315,000 and anticipated annual cash inflows of $57,000 a year for ten years. Which firm(s), if either, should accept this project? a) Company A only b) both Company A and Company B c) neither Company A nor Company B d) cannot be determined without further information e) Company B only
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