Happy Cows Is a Dairy Farm That Is Currently Earning

question 126

Multiple Choice

Happy Cows is a dairy farm that is currently earning $100,000 in economic profit. The managers of Happy Cows are considering adding a second dairy farm, which will generate an additional $40,000 in economic profit. It is economically sound for the managers of Happy Cows to add the second farm if, after accounting for the managerial diseconomies, the first farm's economic profits exceed______ .

• A)$60,000
• B)$10,000
• C)$40,000
• D)$30,000

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Definitions:

Capital Investment Proposal

A formal request or plan for spending on large-scale projects or purchases, intended to improve a company's assets or operations.

Internal Rate of Return Method

A financial metric used to evaluate the profitability of potential investments, calculating the discount rate that makes the net present value of all cash flows from a particular project equal to zero.

Average Annual Income

The average amount of money earned per year over a specified period, often used to assess financial stability.

Accounting Rate of Return

A financial metric used to assess the profitability of an investment, calculated by dividing the average annual accounting profit by the initial investment cost.