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.