In Lumberville, the Lumberjack Cuts Trees and Sells Them to the Local

question 44

Multiple Choice

In Lumberville, the lumberjack cuts trees and sells them to the local mill for $500. The local mill processes these trees into wood planks and sells them to the carpenter for $800. Finally, the carpenter uses these wood planks to make tables which he sells for $1400 to Lumberville's residents. If we allowed double counting, the total value of Lumberville's output would be calculated as . But if we correctly compute the total value added, the value of the total output in Lumberville would be .

• A)$2700; $1400
• B)$2200; $4200
• C)$2200; $2700
• D)$4200; $2700
• E)$1400; $1400

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Definitions:

Full Capacity

The maximum level of output that a company can produce under normal conditions over a given time period.

EFN

Expected Funds Needed, an estimation of the additional financing a company will require in the future based on its projected growth and existing financial structure.

Sustainable Growth Rate

The maximum rate at which a company can grow its sales and earnings without increasing leverage or debt financing.

Leverage Ratios

Financial metrics that assess the level of debt in a company's capital structure relative to its equity or assets.