A Firm Is Considering the Purchase of a Capital Good

question 148

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 capital good will cost $1,600. If the interest rate is 3 percent, it follows that the firm should

• A)purchase the capital good.
• B)not purchase the capital good.
• C)purchase the capital good only on the condition that the expected inflation rate is greater than the nominal interest rate.
• D)not purchase the capital good since the expected inflation rate is less than the real interest rate.
• E)There is not enough information to answer the question.

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Definitions:

Suprematism

A type of art formulated by Kazimir Malevich to convey his belief that the supreme reality in the world is pure feeling, which attaches to no object and thus calls for new, nonobjective forms in art—shapes not related to objects in the visible world.

Pure Feeling

An unalloyed emotional state that is undiluted by rational thought, often emphasized in discussions of art, music, and poetry to denote sincere or profound emotion.

Objective Reality

The concept that objects exist and have properties independent of any observer's beliefs or perceptions.

Nightingale

A small songbird known for its powerful and beautiful song, often associated with poetry and literature as a symbol of love and longing.