Assume a Firm Has an Ongoing Need for a Machine

question 16

Multiple Choice

Assume a firm has an ongoing need for a machine and the current machine is operating efficiently.The firm should plan to replace this machine when it:

• A)reaches the end of its depreciable life.
• B)is fully paid for.
• C)reaches a point where the book value is less than half of the original cost.
• D)can be replaced with a machine that has a lower annual cost.
• E)can be sold at a price that exceeds the current book value.

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Definitions:

Investment

The practice of investing funds with the view of accruing financial gains or income.

Annual Interest Rate

The percentage of principal charged or earned as interest for a period of one year.

Future Value

The value of an investment at a specific date in the future, accounting for factors like interest rates and compounding.

Annual Inflation Rate

The percentage increase in the price of goods and services over a one-year period, reflecting the purchasing power of a currency.