Solved

Use the Information Below to Answer the Following Question(s)

question 25

Multiple Choice

Use the information below to answer the following question(s) .Hawkeye Cleaners has been considering the purchase of an industrial dry-cleaning machine.The existing machine is operable for three more years and will have a zero disposal price.If the machine is disposed of now, it may be sold for $30,000.The new machine will cost $200,000, an additional cash investment in working capital of $60,000 will be required and will be returned at the end of the project.The machine is expected to last 3 years and has an estimated disposal value at that time of $20,000.The new machine will reduce the average amount of time required to wash clothing and will decrease labour costs.The investment is expected to net $50,000 in additional cash inflows during the year of acquisition and $150,000 each additional year of use.These cash flows will generally occur throughout the year and are recognized at the end of each year.Income taxes are not considered in this problem.
-Which of the following results of net present value analyses is the LEAST acceptable?

Differentiate between marginal private cost and marginal social cost.

Identify examples of externalities in daily life and their impact on society.

Understand the concept of external costs and how they lead to overproduction in the absence of government intervention.

Recognize the importance of considering external costs in achieving efficient levels of production.

Definitions:

Asian Call Option

A type of call option where the payoff depends on the average price of the underlying asset over a specified period rather than at maturity.

Underlying Asset

The financial asset upon which derivative contracts, such as options and futures, are based.

Exercise Price

The price at which the holder of an option can buy or sell the underlying security or commodity.

Convertible Bonds

Bonds that can be converted into a predetermined number of the company's equity shares at certain times during the bond's life, usually at the discretion of the bondholder.