LD Winery Expects a Demand of 10 000 Bottles Per

question 1

Essay

LD Winery expects a demand of 10 000 bottles per year for a special purpose wine for six years. Net return per unit is $6.10. To produce the wine, LD must buy equipment costing $200 000 with a life of six years and a salvage value of $10 000 after six years. The company estimates that repair costs will be $8000 per year during Years 2 to 6. Should LD invest in the equipment if it requires a return of 16% on its investment?

---

Definitions:

Economic Growth

A rise in the output of goods and services in an economy over a certain period, frequently assessed using GDP.

Federal Budget Deficit

The financial situation where the federal government's expenditures exceed its revenues within a given fiscal year.

Recession

A significant decline in economic activity spread across the economy, lasting more than a few months, visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

Budget Deficit

The financial situation where a government's expenditures exceed its revenues within a specific period, leading to borrowing or debt accumulation.