The Management of Charlton Corporation Is Considering the Purchase of a New

question 114

Multiple Choice

The management of Charlton Corporation is considering the purchase of a new machine costing $380,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment: $$\begin{array} { l l l } & \text { Income from } & \text { Net Cash } \\\text { Year } & \text { Operations } & \text { Flow } \\1 & \$ 20,000 & \$ 95,000 \\2 & 20,000 & 95,000 \\3 & 20,000 & 95,000 \\4 & 20,000 & 95,000 \\5 & 20,000 & 95,000\end{array}$$ The cash payback period for this investment is

• A) 4 years
• B) 5 years
• C) 19 years
• D) 3.3 years

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Definitions:

Supply Curve

A graph representing the relationship between the price of a good or service and the quantity of it that producers are willing to supply.

Equilibrium Price

The market price at which the quantity of a good demanded equals the quantity supplied, leading to market stability.

Inverse Demand Function

A mathematical representation showing the relationship between the quantity demanded of a good and its price, typically derived by solving the demand function for price.

Inverse Supply

The inverse supply function represents the relationship between the price of a good and the quantity supplied, expressed as price as a function of quantity, contrasting with the typical supply function which is quantity as a function of price.