Suppose a Firm Is Considering the Purchase of a Machine

question 175

Multiple Choice

Suppose a firm is considering the purchase of a machine which would increase its total revenues by $10,000 for the year. The machine costs $8,000 and has a useful life of one year. The interest rate is 20 percent. This investment should

• A) be undertaken because the rate of return is 2 percent greater than the interest rate.
• B) be undertaken because the rate of return is 5 percent greater than the interest rate.
• C) be undertaken because the rate of return is 7 percent greater than the interest rate.
• D) not be undertaken, because the rate of return is 7 percent less than the interest rate.

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Definitions:

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A characteristic of goods for which demand does not significantly change with a change in price.

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Illegal activities connected to the possession, distribution, manufacture, or use of controlled substances as defined by law.

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Technological improvements involve the application of better solutions that meet new requirements or existing market needs, often leading to increased efficiency and productivity.