A Firm Should Make an Investment Only If

question 230

Multiple Choice

A firm should make an investment only if

• A)it is profitable in every year.
• B)the present value of the profits exceeds the present value of the costs.
• C)the present value of the revenues exceeds the present value of the costs.
• D)there are no large losses in the early years.

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Definitions:

Contribution Margin

The amount remaining from sales revenue after variable expenses are deducted, indicating how much contributes to covering fixed costs and generating profit.

Production Capacity

The maximum amount of goods or services that a facility can produce over a given time period under normal operating conditions.

Sales Mix

The proportion of different products or services that make up the total sales of a company.

Limited Production

A production strategy where a restricted quantity of a product is made, often to maintain exclusivity or because of constraints.