You Are Hired as a Consultant to Decide If Your

question 7

Multiple Choice

You are hired as a consultant to decide if your client should purchase a new, highly specialized piece of equipment. The product to be produced by this equipment is forecast to have a total worldwide demand of 15,000 units over the entire product life. The initial investment to acquire and install the equipment is $256,000. The variable cost to produce each unit will be $15, and the selling price for the finished product will be $30. Which of the following best describes the situation the firm is facing?

• A) The company will recover its initial investment.
• B) The company's total margin will be less than its investment.
• C) It is a good investment.
• D) The break-even is lower than the 15,000 units that are expected to sell.
• E) All of these choices are correct.

Know the accounting treatment for issuing stock for non-cash considerations such as services and land.

Understand the differences between common stock and preferred stock, including par value, stated value, and no-par stock.

Distinguish between the concepts of authorized, issued, and outstanding shares.

Comprehend the reasons for acquiring treasury stock and the effects of such transactions.

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Definitions:

Social Approval

The affirmation, acceptance, or endorsement by members of a society or group, often influencing behavior and conforming to societal norms.

Conformity

The act of aligning one's behaviors, attitudes, or beliefs to match those of a group or societal norms.

Social Norms

Rules and standards that are understood by members of a group and that guide and constrain social behavior without the force of laws.

Bearers of Culture

Individuals or groups that carry, transmit, and preserve cultural traditions and values.