When an Entity Invests Solely to Replace Worn Out Equipment

question 4

Multiple Choice

When an entity invests solely to replace worn out equipment they also often end up incorporating new technology.This is considered as:

• A) a necessity in the replacement decision.
• B) irrelevant because if the old equipment was satisfactory then no improvement is necessary.
• C) a bonus for the entity.
• D) a waste of money because more advanced equipment is often more expensive.

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Definitions:

Premium Bonds

Bonds sold for more than their face value due to offering interest rates higher than the current market average.

Discount Bonds

Bonds that are sold for less than their face value, typically reflecting that the market interest rates are higher than the bond's coupon rate.

Bond Price

The amount of money for which a bond is bought or sold in the market, influenced by interest rates, credit quality, and maturity period.

YTM

Yield to Maturity (YTM) is the total return anticipated on a bond if the bond is held until its maturity date, accounting for its current market price, interest payments, and time value.