The Partners in the Wonderwords Word Processing Firm Spend $12,000

question 50

Multiple Choice

The partners in the Wonderwords word processing firm spend $12,000 on computers,hoping to earn an additional $1,000 per year with them.If the partners could earn 7 percent interest on a bank deposit they should

• A)put the $12,000 in the bank
• B)put $6,000 in the bank and spend only $6,000 on computers
• C)buy the computers because the rate of return on the computers is positive
• D)buy the computers only if they do not have to borrow the funds to buy the computers
• E)buy the computers because the rate of return on the computers exceeds 7 percent

---

Definitions:

IPO

Initial Public Offering, the process by which a private company becomes publicly traded by offering its shares for sale to the general public for the first time.

Public

Relating to or involving the people as a whole; often used to describe companies whose shares are available to be bought and sold by the general population.

Agency Costs

Expenses stemming from conflicts of interest between parties in a corporation, especially between owners and managers.

Stockholders

Individuals or entities that own shares of a company's stock, making them owners of a portion of the company.