A Manager Is Considering Investing in a New Piece of Equipment

question 33

Multiple Choice

A manager is considering investing in a new piece of equipment. The equipment cost $50,000 and the manager will finance the full amount of the cost over three years at an interest rate of 4 percent. In the third year, the manager will repay the entire principal of the loan plus the year's annual interest, after making interest- only payments for the first two years. The equipment will generate $30,000 in future operating profit each of the three years and has a salvage value of zero at the end of the three years. The tax rate on the firm's profit is 8 percent each year. What is the firm's interest- only payment in each of the three years?

• A)$2,400
• B)$4,000
• C)$1,200
• D)$2,000

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Definitions:

Sociocultural Theorist

A researcher or scholar who studies how societal and cultural contexts influence human behavior and cognitive development.

Attachment Formation

The process by which an emotional bond is developed, primarily in early childhood, influencing relationships throughout life.

Cultural Groups

Collections of people who share common values, beliefs, practices, and traditions, often defined by nationality, ethnicity, religion, or other unifying cultural elements.

Social Referencing

The tendency for individuals, especially infants and children, to look to others in their environment to obtain cues for how to react in certain situations.