Flint Systems Is Considering Investing in Production-Management Software That Costs

question 79

Multiple Choice

Flint Systems is considering investing in production-management software that costs $600,000,has $60,000 residual value,and leads to cost savings of $150,000 per year over its five-year life.Calculate the average amount invested in the asset that should be used for calculating the accounting rate of return?

• A)$660,000
• B)$600,000
• C)$330,000
• D)$60,000

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Definitions:

Debenture

A type of debt instrument that is not secured by physical assets or collateral but is based on the issuer's creditworthiness and reputation.

Risk Premium

The additional return over the risk-free rate that an investment is expected to yield, compensating investors for taking on higher risk.

Default Risk

The risk of loss arising from a debtor failing to make required payments on their debt obligation.

Cost Of Borrowing

The total expense that a borrower pays to secure and utilize a loan, including interest rates, fees, and other charges.