A Bakery Is Deciding Whether to Buy an Extra Van

question 7

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 $6 500 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?

---

Definitions:

Journal Entry

A record in the accounting ledger that shows a business transaction, involving a debit to one or more accounts and a credit to another to balance.

Consolidated Financial Statements

Financial reports that display the economic condition, operational outcomes, and cash movements of a parent company and its subsidiary companies as one consolidated entity.

Pooling-of-interests Method

A merger accounting method where the assets and liabilities of merging companies are combined using their book values.

Acquisition Method

An accounting approach used to consolidate the financial statements of two companies when one company acquires control over the other.