Razorback Corp

question 2

Essay

Razorback Corp. is evaluating whether it should keep its automatic guided vehicle or sell it immediately and purchase a new one. The current vehicle can be sold for $28,000 now; however, with an overhaul of $8250, the current vehicle can last another 5 years. Other relevant costs are shown below. Use a before- tax MARR of 5% per year and determine whether the current vehicle should be replaced. $$\begin{array} { | l | l | l | } \hline & \text { Defender } & \text { Challenger } \\\hline \text { Capital investment, } \$ & 34,250,5 \text { years ago } & 38,250 \\\hline \text { Annual operating expenses, } \$ & 5500 & 7800 \\\hline \text { Useful life, years } & 10 & 12 \\\hline \begin{array} { l } \text { Estimated salvage value at the end } \\\text { of useful life }\end{array} & 2500 & 5500 \\\hline\end{array}$$

Explain the promises made to a bond buyer and the main function of the financial system.

Evaluate the impact of fiscal policies on savings and long-run living standards.

Distinguish between different types of risks associated with bonds.

Understand the significance of price to earnings ratio in evaluating company stock.

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Definitions:

Budget Constraint

A budget constraint outlines the mix of goods and services a consumer is able to buy, based on their income and the prices of those goods and services.

Budget Constraint

A budget constraint represents the combination of goods and services that a consumer can purchase given their income and the prices of those goods and services.

Marginal Utility

The incremental enjoyment or value obtained from consuming an extra unit of a good or service.

Income-Consumption Curve

A graph that shows how a consumer's optimal bundle of goods changes as their income changes, all else being constant.