In Payment for His Help with the Construction of Valhalla,Wotan

question 27

Multiple Choice

In payment for his help with the construction of Valhalla,Wotan offers Fafner two alternatives.First,he offers $1,260 per year forever (with the first payment in one year) .Second,he offers his sister-in-law,Freia (the girl with the golden apples) .If Fafner thinks that Freia is worth $12,000 and his required rate of return is 10.5%,which of the following is correct?

• A) Freia is more valuable.
• B) The perpetuity is more valuable.
• C) The two are equal in value. He is indifferent between them.

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Definitions:

Fixed Costs

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and insurance premiums.

Flexible Budget

A budget that adjusts or varies with changes in the volume of activity, providing a more useful tool for performance evaluation.

Variable Costs

Costs that change in proportion to the level of activity or production volume, such as raw materials and direct labor.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product and are a significant part of its composition.