A Company Is Considering the Purchase of a New Machine

question 23

True/False

A company is considering the purchase of a new machine for $48,000. Management expects that the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $8,000 per year plus depreciation of $4,000 per year. All revenues and expenses except depreciation are on a cash basis. The payback period for the machine is 6 years.

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Definitions:

Demand Schedule

A table that shows the quantity of a good or service that consumers are willing and able to purchase at different prices.

Rent-Seeking Activity

Rent-Seeking Activity involves individuals or entities attempting to obtain economic rent by manipulating the social or political environment in which economic activities occur, rather than creating new wealth.

Demand Schedule

A table or graph showing the quantity of a good that buyers wish to purchase at various prices.

Natural Monopoly

A market structure where a single firm can supply a good or service to an entire market at a lower cost than two or more firms, often due to high fixed or infrastructure costs.