Sturn Corporation Purchased a Machine with an Estimated Useful Life

question 82

Multiple Choice

Sturn Corporation purchased a machine with an estimated useful life of seven years. The machine will generate cash inflows of $9,000 each year over the next seven years. If the machine has no salvage value at the end of seven years, if Stutz's discount rate is 10%, and if the net present value of this investment is $17,000 then the purchase price of the machine was closest to:

• A)$43,812
• B)$26,812
• C)$17,000
• D)$22,195

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Definitions:

Peak Efficiency

The highest level of performance or effectiveness that a process, machine, or organization can achieve.

ATC (Average Total Cost)

The per unit cost of production, calculated by dividing the total cost by the quantity of output produced.

MC (Marginal Cost)

The additional expense associated with the production of one more unit of a product or service.

Take a Loss

To realize a financial loss on an investment or transaction, often as a result of selling assets for less than their purchase price.