Peterborough Controls Ltd

question 107

Multiple Choice

Peterborough Controls Ltd.currently utilizes a manufacturing facility for $250,000 per year.The facility is used at 75 percent capacity.The shipping department has proposed a plan in which it would utilize the other 25 percent plant capacity for the company's shipping plus handling the shipping of several nearby businesses.The company's consulting firm estimated that the overall costs of maintaining the space would increase by 10 percent.The shipping manager is interested in the amount that would be allocated under the incremental method.

• A)$70,000
• B)$68,750
• C)$62,500
• D)$25,000
• E)$24,000

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Definitions:

Zero-Coupon Bond

A bond that does not pay periodic interest, but is issued at a deep discount, with the return being the difference between the purchase price and the face value at maturity.

Stripped Bond

A debt security where the principal and regular coupon payments have been separated and are sold as individual securities.

Inflation Premium

The part of the nominal interest rate that represents compensation to the lender for the loss of purchasing power due to inflation.

Fisher Effect

An economic theory stating that the real interest rate is independent of monetary measures, especially the nominal interest rate and the expected inflation rate.