Fresh Flour Makes Baking Flour and Sells Its Flour in 4

question 102

Multiple Choice

Fresh Flour makes baking flour and sells its flour in 4 pound sacks or bags. The managers of Fresh Flour are considering whether the firm should make or buy the flour sacks. To make the sacks, Fresh Flour needs a $500,000 piece of equipment. Using this equipment, Fresh Flour can make a flour sack for $0.01 and, for simplicity, ignore taxes and assume that the $0.01 cost includes depreciation and all other costs. Fresh Flour would finance the $500,000 investment using its own funds and, if it purchased the flour sacks from another firm, it would pay $0.19 a flour sack. The life span of the equipment is 10 years and it has no salvage value at the end of the ten years. If the discount rate is 6 percent and the firm needs 400,000 flour sacks a year, what is the present value of the equipment?

• A)$459,250
• B)$500,962
• C)$623,850
• D)$529,926

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Definitions:

Discrimination

Unfair or prejudicial treatment of individuals or groups based on characteristics such as race, gender, age, or sexual orientation.

Public Accommodation

Business and nonbusiness enterprises, buildings, and other places and organizations that are generally open to the public, which are subject to regulation, including non-discrimination requirements on various bases, by federal, state, and local laws. Definitions vary somewhat under each specific law, but generally exclude private clubs and religious organizations.

Tort Action

A legal action for a tort, which is a wrongful act leading to civil legal liability.

Commercial Property

Real estate property that is used for business activities or purposes rather than as residential property.