Using a Reasonable and Realistic Estimate of Life Expectancy of a Capital

question 46

Short Answer

Using a reasonable and realistic estimate of life expectancy of a capital expenditure is important because: a. Too low of an estimate understates the profitability of the investment.
B) Too high of an estimate could lead to a wasteful use of scarce capital.
C) A profitable opportunity could be rejected if the life expectancy is not reasonable or realistic.
D) Both A and
B) e. A, B and
C)

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Definitions:

Total Expenditures

The sum of all spending incurred by individuals, firms, or the government within a specific period.

Isocost Line

A line representing all combinations of inputs that result in the same total cost for a firm.

Price Of Capital

The cost of using capital goods for production, often represented by interest rates or rental prices of equipment and machinery.

Slope

A measure of the steepness or incline of a line, indicating the rate of change between two variables on a graph.