A Firm Is Considering the Purchase of a Capital Good

question 98

Multiple Choice

A firm is considering the purchase of a capital good that will generate an additional $400 income each year for 4 years (after which time the capital good is useless and has no scrap value) .The interest rate is 3 percent.It follows that the firm should not purchase the capital good if its price is greater than (approximately)

• A) $1,358.
• B) $1,487.
• C) $1,602.
• D) $1,749.
• E) $1,233.

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Definitions:

Availability Heuristic

Estimating the likelihood of events based on their availability in memory; if instances come readily to mind (perhaps because of their vividness), we presume such events are common.

Mental Set

A tendency to approach a problem in one particular way, often a way that has been successful in the past.

Classifying Objects

The cognitive process of organizing items into categories based on shared characteristics.

Algorithms

A defined set of step-by-step procedures or rules followed in calculations or problem-solving operations, especially by a computer.