Assume a Machine That Has a Useful Life of Only

question 30

Multiple Choice

Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is
Expected to be $2,300. If the firm finds it can borrow funds at an interest rate of 10 percent, the firm
Should

• A) not purchase the machine, because the expected rate of return exceeds the interest rate.
• B) not purchase the machine, because the interest rate exceeds the expected rate of return.
• C) purchase the machine because the expected rate of return exceeds the interest rate.
• D) purchase the machine because the interest rate exceeds the expected rate of return.

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Definitions:

Taxpayer's Household

The group of individuals, typically family members, who live with the taxpayer and may affect the taxpayer's tax filings and deductions.

Marital Status

An individual’s legal partnership status, such as single, married, divorced, or widowed.

Tax Purposes

Pertaining to or in order to comply with tax laws and regulations.

Head of Household

Head of Household is a filing status for individual U.S. taxpayers who are unmarried and pay more than half the cost of keeping up a home for themselves and a qualifying person.