Assume That a Machine, Which Has a Useful Life of Only

question 72

Multiple Choice

Assume that a machine, which has a useful life of only one year, costs $2,000.Also, assume that the difference between the estimated operating costs, which includes power and taxes, and the additional revenue from the output of this machine is expected to be $2,300.If the firm finds that it can borrow funds at an interest rate of 10 percent per annum, the firm should:

• A)not purchase the machine because the expected rate of return exceeds the cost of borrowing.
• B)purchase the machine because the expected rate of return exceeds the cost of borrowing.
• C)not purchase the machine because the cost of borrowing exceeds the expected rate of return.
• D)purchase the machine because the cost of borrowing exceeds the expected rate of return.

---

Definitions:

Management Accounting

Management accounting involves the preparation of financial reports and analyses to help managers in decision-making processes related to the operation and strategic planning of a company.

Non-Financial Information

Data relevant to a company's operations that is not measured in monetary terms, such as customer satisfaction or employee turnover rates.

Fixed Costs

Expenses that do not change with the level of production or sales, including rent, salaries, and insurance premiums, providing predictability to budgeting.

Activity Levels

Various measures of operational intensity or volume of work done by a company, used in budgeting and cost management.