A Grocery Store Manager Must Decide Whether to Buy Four

question 48

Multiple Choice

A grocery store manager must decide whether to buy four carpet-cleaning machines so that the store can rent them to customers.The manager estimates that the first machine would yield an income of $200 per year, the second $150, the third $75, and the fourth $20.Suppose the interest rate is 12 percent and each machine costs $500.How many carpet-cleaning machines should the manager buy?  

• A) none 
• B) one 
• C) two 
• D) three

Learn how to evaluate investment proposals using the profitability index.

Understand the concept of incremental cost approach in capital budgeting.

Recognize the importance of post-audit in capital budgeting and how it can provide feedback on the investment's performance.

Understand the effect of tax implications on cash flows from capital investments.

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