If a Firm Needs One Machine to Produce a Product,and

question 101

Multiple Choice

If a firm needs one machine to produce a product,and must replace the machine when it wears out,then the firm should pick a durability level of the machine that

• A) minimizes the expense today.
• B) minimizes the present discounted cost of having the machine forever.
• C) maximizes the future value of the machine.
• D) minimizes the future value of the machine.

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Definitions:

Monthly Interest Rate

The Monthly Interest Rate is the interest rate charged or earned per month on a loan, savings account, or investment, expressed as a percentage of the principal.

NPV

Net Present Value; a financial metric that evaluates the profitability of an investment or project by calculating the difference between the present value of cash inflows and outflows over a period of time.

Chance Of Default

The probability that a borrower will be unable to meet their obligation to repay a loan or meet contractual obligations.

Monthly Interest Rate

The interest rate expressed as a monthly percentage, reflecting the cost of borrowing money or the earnings from lending money on a monthly basis.