When Using the Net Present Value Method to Compare Keeping

question 51

Multiple Choice

When using the net present value method to compare keeping an old building or disposing of it and acquiring a new building, the current cash residual value of the old building should be

• A) a subtraction from the price paid for the new building.
• B) viewed as a cash flow.
• C) an addition to the price paid for the new building.
• D) irrelevant to the decision.

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Definitions:

Marginal Cost

The cost added by producing one additional unit of a product or service, important for decision-making in resource allocation.

Average Total Cost

The total cost of production divided by the quantity of output produced; it includes all fixed and variable costs.

Average Total Cost

The total cost of production divided by the quantity produced, indicating the average cost per unit of output.

Marginal Cost

The added expense incurred from producing an additional unit of a good or service.