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:

Statement of Revenue

A financial statement that shows the income earned by a company over a certain period of time.

Fiscal Year

A one-year period used for financial reporting and budgeting, which may or may not align with the calendar year.

General Fund Journal Entries

Entries in the accounting records that detail transactions involving the government's general fund, which covers most basic governmental activities.

Vintage Railroad

A term for old and often historic rail lines or companies, frequently celebrated or preserved for their cultural heritage.