A Bakery Is Deciding Whether to Buy an Extra Van

question 117

Multiple Choice

A bakery is deciding whether to buy an extra van to help deliver its products.The van will cost $28,000,but is expected to increase profits by $6500 per year over the five years of its working life.Which of the following is the correct net present value (NPV) profile for this purchase?

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Definitions:

Economic Profit

The difference between a firm's total revenues and its total costs, including both explicit and implicit costs, measured in terms of opportunity costs.

Long Run

A period in economics where all factors of production and costs are variable, allowing full adjustment to changes.

Demand Curve

A diagram that illustrates the connection between a product's price and the amount of the product that buyers are prepared and capable of buying at different price levels.

Economic Profit

The difference between the total revenue earned by a business and the total costs (both explicit and implicit) of all resources used.