The Oakley-Brown, a Frozen Food Processor, Requires an Additional Refrigeration

question 22

Multiple Choice

The Oakley-Brown, a frozen food processor, requires an additional refrigeration unit. The company is considering a premium model at a cost of $52,000. Expected life for the unit is five years with a residual value of $18,500. The incremental income before depreciation is expected to be $14,500 a year. The company's cost of capital is 14%. Using 14% and 25% as trial values, what increase in the cost of capital will eliminate the unit from consideration?

• A) 0.6%
• B) 11%
• C) 2.0%
• D) 5.1%
• E) 19.7%

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Definitions:

Payoff Matrix

A table that shows the potential outcomes of different strategies in a competitive situation, typically used in game theory.

Strategic Choice

The decision-making process in the context of strategic management, where leaders select the best course of action to achieve organizational goals.

Payoff

In game theory, the reward received by a player (for example, the profit earned by an oligopolist).

Dominant Strategy

A dominant strategy is the best course of action for a player in a game, regardless of what the other players do, always resulting in a better outcome for the player.