Use This Information to Answer the Following Question

question 96

Multiple Choice

Use this information to answer the following question. You have the opportunity to purchase a machine for $10,000.After careful study of expected costs and revenues,you estimate that the machine will produce a net cash flow of $3,200 annually and will last 5 years.Based on an interest rate of 7 percent,determine the present value of the machine and if the machine should be purchased.

• A)$13,120,the machine should not be purchased
• B)$13,120,the machine should be purchased
• C)$2,282,the machine should not be purchased
• D)$7,130,the machine should not be purchased

Understand the concept of profit maximization and how it determines the optimal level of production.

Comprehend the significance and calculation of average variable costs and their role in maximizing profits.

Grasp the importance of identifying the profit-maximizing price and quantity in various market scenarios.

Recognize the conditions and calculations related to a firm’s shutdown point.

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Definitions:

Semiannually

Taking place twice within a year or every half year.

Effective Interest Method

An accounting technique for calculating interest expense on bonds that amortizes discount or premium over the life of the bonds.

Straight-line Method

A depreciation technique that allocates an equal portion of the value of an asset over its useful life, used to gradually reduce the asset's book value.

Par Value

A nominal value or face value given to a share of stock at the time of its issuance, often used for legal and accounting purposes.