A Bond Pays $100 at the End of Each Year

Question

Examlex · Accepted Answer

The Answer is Your cost of labor and lease payments are irrelevant to this decision,as the contract requires you to make these payments over the next year regardless of whether you acquire a new color copier.The incremental cost of the copier is $30,000.If you acquire a new copier,you will earn 8 cents on each copy you sell (10 cents less paper costs of 2 cents),so your incremental revenues from purchasing a new copier are ($.08)(500,000)= $40,000.Since incremental revenues exceed incremental costs,you should acquire a new color copier.You earn $10,000 more by purchasing a new copier than by not purchasing it.

A Bond Pays $100 at the End of Each Year

Definitions: