Assume That a Firm Is Considering Building a Factory That

question 81

Multiple Choice

Assume that a firm is considering building a factory that will cost $5 million. It believes that it can get a profit from this factory of $600,000 per year for many years. The interest rate at which the firm can borrow money is 15 percent. After evaluating whether it should build the factory, the firm decides that it should:

• A) not build because the rate of return on the factory is only 6 percent.
• B) not build because the rate of return on the factory is only 12 percent.
• C) build because the rate of return on the factory is 30 percent.
• D) build because the rate of return on the factory is 35 percent.

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Definitions:

State Statute

A written law enacted by a state legislature governing matters within the state's jurisdiction.

Lien

A legal claim or right against a property as security for a debt or charge that must be paid when the property is sold.

Surety

A surety is a person or entity that takes responsibility for another's performance of an obligation, such as the repayment of a loan, ensuring its fulfillment or providing compensation for failure.

Obligation

A legal or moral duty to perform or refrain from performing a specific act.