A Firm Can Invest in One of Two Projects: the Purchase

question 97

Multiple Choice

A firm can invest in one of two projects: the purchase of new manufacturing equipment or the training of its factory workers in the better use of time management. Both projects cost the same amount of money. The purchase of new manufacturing equipment is expected to reduce costs by $10,000 each year for 5 years. The training of the factory workers in the better use of time management is expected to increase revenues by $10,000 each year for 10 years. Which of the following is true?

• A) Each of these projects would have the same expected rate of return, as they both cost the same.
• B) The purchase of new manufacturing equipment would have the higher expected rate of return, as it reduces costs whereas the training of factory workers in the better use of time management only increases revenues.
• C) The training of factory workers would have the higher expected rate of return, as it will increase revenues for a longer time period than the purchase of new manufacturing equipment will reduce costs.
• D) The expected rates of return for these two projects cannot be compared, as one project reduces costs and the other increases revenues.

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Definitions:

Collective Bargaining

The negotiation process between employers and a group of employees aimed at agreements to regulate working salaries, working conditions, and other aspects of workers' compensation and rights.

Union Wages

The level of compensation agreed upon through collective bargaining between labor unions and employers, often resulting in higher wages and better benefits for union workers compared to their non-union counterparts.

Salary

A fixed regular payment, typically paid on a monthly or biweekly basis but often expressed as an annual sum, for the services of an employee.

Labor-market Discrimination

Differences in pay, employment opportunities, or treatment between workers based on race, gender, age, religion, or other non-skill related factors.