Suppose a Manager Is Deciding Whether or Not to Purchase

question 64

Multiple Choice

Suppose a manager is deciding whether or not to purchase a piece of equipment to make an input internally and has completed the majority of the net present value (NPV) calculations. The manager has correctly calculated the NPV to be equal to: NPV = ($1.082 × Q) - $200,000, where Q is the annual quantity of the input the firm needs. If the firm needs 175,000 units of the input each year, the manager_______ buy the equipment because the NPV is ________ .

• A)should not; negative
• B)should; negative
• C)should; positive
• D)should not; positive

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Definitions:

Marginal Cost

The increment in total financial output required for producing one more unit of a product or service.

Production

The process of creating goods or services by combining labor, capital, and resources to meet consumer demand.

Bushels

A unit of volume that is used primarily in the United States to measure agricultural products such as grain.

Marginal Cost

The expense of fabricating another single unit of a product or service.