Fresh Flour Makes Baking Flour and Sells Its Flour in 4

question 37

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. Which of the following statements is true?

• A)Fresh Flour should invest in the equipment because the net present value is negative.
• B)Fresh Flour should not invest in the equipment because the net present value is positive.
• C)Fresh Flour should not invest in the equipment because the net present value is negative.
• D)Fresh Flour should invest in the equipment because the net present value is positive.

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Definitions:

Attitude

A psychological construct representing an individual's like or dislike for an item, behavior, or issue.

Volitional Phase

In the health action process approach, the stage in which a person pursues a health-related goal.

Health Action Process Approach Model

A psychological framework focusing on the initiation and maintenance of health behaviors, emphasizing motivation, planning, and action phases.

Behavior Change

A modification in an individual's actions or reactions often aimed at improving health or social outcomes.