A Firm Is Considering the Purchase of a Capital Good

question 148

Multiple Choice

A firm is considering the purchase of a capital good that will generate an additional $400 income each year for 4 years (after which time the capital good is useless and has no scrap value) . The capital good will cost $1,600. If the interest rate is 3 percent, it follows that the firm should

• A)purchase the capital good.
• B)not purchase the capital good.
• C)purchase the capital good only on the condition that the expected inflation rate is greater than the nominal interest rate.
• D)not purchase the capital good since the expected inflation rate is less than the real interest rate.
• E)There is not enough information to answer the question.

Understand the formation and identification of fault scarps.

Recognize the various causes of earthquakes including natural and human-induced factors.

Relate the relationship between earthquake depth and tectonic setting.

Understand the concept of seismic wave behavior and its implications for seismic station readings.

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Definitions:

Invested Funds

Capital that has been placed into a project or company, with the expectation of generating income or profit.

Flotation Costs

The administrative cost of issuing new securities. Consists largely of commissions and marketing fees, but printing and engraving costs can also be significant.

Retained Earnings

The portion of a company's profits that is kept or retained rather than paid out as dividends to shareholders.

Flotation Costs

Expenses incurred by a company in issuing new securities, including underwriting, legal, and registration fees.