Suppose a Firm Anticipates That a Particular R&D Expenditure of $100

question 29

Multiple Choice

Suppose a firm anticipates that a particular R&D expenditure of $100 million will result in a new product and thus create a one-time added profit of $108 million a year later. The firm will

• A) undertake the R&D expenditure if its interest-rate cost of borrowing is 12 percent.
• B) undertake the R&D expenditure if its interest-rate cost of borrowing is 10 percent.
• C) not undertake the R&D expenditure if its interest-rate cost of borrowing is 9 percent.
• D) not undertake the R&D expenditure if its interest-rate cost of borrowing is 7 percent.

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Definitions:

Plantation

An early word for a colony, a settlement “planted” from abroad among an alienpopulation in Ireland or the New World. Later, a large agricultural enterprise that used unfree laborto produce a crop for the world market.

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An enslaved African American preacher who led a four-day rebellion of enslaved and free black people in Southampton County, Virginia in 1831.

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A person, typically male, who lives in accordance with the beliefs, practices, and ethical values of his religion.

Public Debate

A discussion or argumentation among citizens or public figures on issues of societal concern.