The Oakley-Brown, a Frozen Food Processor, Is Considering Buying a Curly-Fry

question 29

Multiple Choice

The Oakley-Brown, a frozen food processor, is considering buying a curly-fry extruder with potato preparation attachments for $90,000. It expects to sell 2,500 cases the first year and 4,500 cases for four years after that while the craze lasts. Price per case will be $30. Cost of goods, selling and administration expenses equal $62,500 in the first year and $100,500 in the subsequent years. What price drop will bring NPV to near zero if the company's hurdle rate is 14%?

• A) $0.06
• B) $0.15
• C) $0.67
• D) $1.00
• E) $1.50

Evaluate equipment investment decisions using different capital budgeting techniques.

Understand the basic principles of capital budgeting and investment evaluation techniques.

Calculate and interpret the payback period for investment projects.

Understand and apply the concept of net present value (NPV) in investment decisions.

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Definitions:

Intraorganizational Bargaining

The process of negotiation and compromise within an organization, often related to internal resource allocation, strategy direction, or conflict resolution between different departments or groups.

Medical Benefits

Health-related services and support provided to employees as part of their compensation package.

Hourly Wage Increase

An upward adjustment in the rate of pay received by employees for each hour worked.

Union-Made Component

Products or components that are manufactured by workers who are members of a labor union, often indicating adherence to certain labor standards and support for labor rights.