The Picture Company Is Considering the Purchase of a New

question 8

Multiple Choice

The Picture Company is considering the purchase of a new machine for $68,754.The machine would generate an annual cash flow of $21,000 for five years.At the end of five years,the machine would have no salvage value.The company's cost of capital is 12%.The company uses straight-line depreciation. What is the internal rate of return for the machine (rounded to the nearest percent) ?

• A)12%
• B)14%
• C)16%
• D)18%

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Definitions:

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, or insurance, and must be paid regardless of business activity.

Industry Supply Curve

The industry supply curve represents the total quantity of goods that producers in a market are willing and able to sell at different prices, assuming all other factors constant.

Output

The cumulative production of goods or services by a corporation, industry, or the entire economy.

Supply Curve

A graph showing the relationship between the price of a good and the amount of the good that suppliers are willing to sell at that price.