TZ Acquired a Machine and Gave 10 Instalment Notes of $2,000

question 60

Multiple Choice

TZ acquired a machine and gave 10 instalment notes of $2,000 each. One note matures on the last day of each of the next 10 semi-annual periods. No interest was specified on the notes or the purchase contract. The going rate of interest for such transactions was 20 percent per annum. The cost of the new machine should be recorded by TZ as (rounded to the nearest dollar) :

• A) $7,710.
• B) $12,290.
• C) $18,000.
• D) $20,000.

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Definitions:

Short-Run Average Total Cost

Short-run average total cost is the total cost of production (fixed and variable costs) divided by the total output produced, calculated when at least one factor of production is fixed.

Economies

The large set of interrelated production and consumption activities that aid in determining how scarce resources are allocated.

Diseconomies

Circumstances where increasing the scale of production leads to higher per-unit costs, often due to inefficiencies gained at larger scales.

Average Total Costs

The average cost per unit is calculated by dividing the entire production cost by the quantity of units produced.