Consider a Firm with a Contract to Sell an Asset

question 71

Multiple Choice

Consider a firm with a contract to sell an asset 3 years from now for $90,000.The asset costs $71,000 to produce today.At what rate will the firm just break even on this contract?

• A)7.87 percent
• B)8.01 percent
• C)8.23 percent
• D)8.57 percent
• E)8.90 percent

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Definitions:

Transfer Price

The price at which goods or services are transferred between departments or subsidiaries within the same company, used for accounting and tax purposes.

Operating Income

Earnings before interest and taxes (EBIT), calculated as gross income minus operating expenses.

Variable Cost

A variable cost varies directly with the level of production or sales volume, such as materials and labor costs.

Operating Income

Earnings before interest and taxes (EBIT), a measure of a company's profitability from regular business operations.