When Considering the Purchase of a Large Central System,such as Power

question 4

Multiple Choice

When considering the purchase of a large central system,such as power generation or computer networks,firms have to decide how big a system to acquire and whether,and,if so,how to charge users for it subsequently.Which is true? $\begin{array}{llcc}\text { Charge } & \text { Lirely consequence }\end{array}$

a. $\begin{array}{llcc}\text { None } & \text { Firm acquires more capacity than needed }\end{array}$

b. $\begin{array}{llcc}\text { Full cost } & \text { Demand for resource equals capacity } \end{array}$

c. $\begin{array}{llcc}\text { Depreciation only } & \text { Firm acquires less capacity than needed } \end{array}$

d. $\begin{array}{llcc}\text { Depreciation only } & \text { Demand for resource equals capacity }\end{array}$

e. $\begin{array}{llcc}\text { None of the above}&\end{array}$

• A)Option A
• B)Option B
• C)Option C
• D)Option D
• E)Option E

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Definitions:

Earnings Before Interest and Taxes

A financial metric indicating the profitability of a business before accounting for interest and tax expenses.

Return on Assets

A financial metric that assesses a firm's ability to generate earnings from its assets, determined by dividing its net income by its overall assets.

Earning Per Share

The earnings a company makes per share of its common stock outstanding, signifying how profitable the company is.

Total Equity

The value left in a company after deducting total liabilities from total assets, representing the ownership value in the company.