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:

Management

The process of planning, organizing, directing, and controlling the operations of a business or organization to achieve its objectives.

Wagner Act

Also known as the National Labor Relations Act of 1935, it is a foundational statute of US labor law which guarantees basic rights of private sector employees to organize into trade unions, engage in collective bargaining, and take collective action such as strikes.

Picket

A method of protest in which individuals (often labor union members) demonstrate at a particular location to voice their grievances or demands, frequently outside their place of work.

Unsafe Working Conditions

Work environments that pose hazards to employees' health or safety, often in violation of occupational safety and health standards.