A Firm Is Considering Purchasing a New Machine,which Costs $500,000

question 53

Multiple Choice

A firm is considering purchasing a new machine,which costs $500,000 and has a six-year life,a CCA rate of 30 percent,and an expected salvage value of $45,000.The project will generate sales revenue of $200,000 in the first year,which will grow at 5 percent per year in the subsequent years.Variable costs will be $80,000 for the first year,which will grow at 7 percent per year.The firm's marginal tax rate is 35 percent and required return is 10 percent.What is the project's NPV?

• A) $12,264
• B) $25,376
• C) $497,546
• D) $519,351

Analyze the impact of market price on a firm's economic profit, loss, and break-even conditions.

Evaluate the implications of different levels of output on a firm's profitability using concepts like total revenue and total cost.

Comprehend the role and minimum points of average total cost (ATC) and average variable cost (AVC) curves in a firm's production decisions.

Identify the condition under which a firm should continue to operate or shut down in the short run based on price and cost analysis.

---

Definitions:

Acute Care Hospital

A type of hospital that provides short-term medical treatment for patients having an acute illness or injury or recovering from surgery.

Osteoarthritis

A degenerative joint disease characterized by the breakdown and eventual loss of the cartilage of one or more joints.

Wander

To move or travel aimlessly or without a specific destination; often associated with exploration or the act of being lost.

Dementia

A category of brain diseases that cause a long-term and often gradual decrease in the ability to think and remember, affecting a person's daily functioning.