An Important Cash Inflow in the Analysis of Initial Cash

question 49

Multiple Choice

An important cash inflow in the analysis of initial cash flows for a replacement project is ________.

• A) taxes
• B) the cost of the new asset
• C) installation cost
• D) the sale value of the old asset

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Definitions:

AVC

Average Variable Cost, which is the total variable cost divided by the quantity of output produced, representing the variable cost per unit of output.

Economies Of Scale

They refer to the cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

Pin Factory

Illustration by Adam Smith in "The Wealth of Nations" on how division of labor increases productivity, using a pin factory as an example.

Diminishing Returns

The principle stating that if one factor of production is increased while others remain constant, the overall returns will initially increase but there will come a point where the added benefits will start to decrease.