Carlson Manufacturing Has Some Equipment That Needs to Be Rebuilt

question 35

Multiple Choice

Carlson Manufacturing has some equipment that needs to be rebuilt or replaced. The following information has been gathered relative to this decision: Carlson uses the total cost approach to net present value analysis and a discount rate of 12%. Regardless of which option is chosen, rebuild or replace, at the end of five years Carlson Manufacturing will have no future use for the equipment. If the new equipment is purchased, the present value of the cash flows that occur now is:

• A)($48,000)
• B)($39,000)
• C)($41,000)
• D)($37,000)

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Definitions:

Utility Function

A mathematical representation of how choices lead to satisfaction levels for consumers, indicating preferences among various sets of goods and services.

Income

Monetary gain derived from work, investments, business, or other sources intended to fund personal expenditures.

Tax

A mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Utility Function

A rephrased definition: A tool in economics to quantify an individual's satisfaction from consuming different bundles of goods and services.