Suppose a Firm Is Considering the Purchase of a Machine

question 213

Multiple Choice

Suppose a firm is considering the purchase of a machine which would increase its total revenues by $10,000 for the year. The machine costs $8,000 and has a useful life of one year. The interest rate is 20 percent. This investment should

• A)be undertaken because the rate of return is 2 percent greater than the interest rate.
• B)be undertaken because the rate of return is 5 percent greater than the interest rate.
• C)be undertaken because the rate of return is 7 percent greater than the interest rate.
• D)not be undertaken, because the rate of return is 7 percent less than the interest rate.

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Definitions:

Food Stamps

A government-provided voucher program, now commonly known as the Supplemental Nutrition Assistance Program (SNAP), designed to help low-income individuals and families afford food.

Contributory

Relating to or involving contributions; in the context of social security or insurance, it refers to systems where benefits are contingent upon the beneficiary's prior contributions.

Noncontributory

A social welfare program that does not require participants to have contributed to a specific fund in order to receive benefits from it.

Welfare

Government programs designed to assist individuals and families in meeting their basic needs, such as food, housing, and healthcare, often aimed at those living in poverty.