Suppose That a Small County Is Considering Adding a Guard

question 79

Multiple Choice

Suppose that a small county is considering adding a guard rail to a dangerous curve by a river. The guard rail will cost $70,000. The average damage done to vehicles that slide off the road at the curve is $10,000. It is expected that the guard rail will prevent 5 vehicles from sliding off the road during its usable life. What should the county do?

• A)Install the guard rail because safety is priceless.
• B)Install the guard rail because the benefits exceed the costs.
• C)Do not install the guard rail because the costs exceed the benefits.
• D)Do not install the guard rail at any cost because drivers can purchase private insurance for their vehicles.

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Definitions:

Indirect Method

A method used in the preparation of cash flow statements, where net income is adjusted for non-cash transactions, deferrals, and accruals to calculate net cash from operating activities.

Operating Activities

Activities directly related to the production and delivery of goods and services, which are central to a company's operations and cash flow.

Residual Value

The estimated amount that an asset is expected to be worth at the end of its useful life.

Straight-Line Method

A method of calculating depreciation by evenly spreading the cost of an asset over its useful life.