A Firm Invests in a New Machine That Costs $5,000

question 118

Multiple Choice

A firm invests in a new machine that costs $5,000 a year but which is expected to produce an increase in total revenue of $5,200 a year. The current real rate of interest is 7 percent. The firm should:

• A) Undertake the investment because the expected rate of return of 10 percent is greater than the real rate of interest
• B) Undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest
• C) Not undertake the investment because the expected rate of return of 6 percent is less than the real rate of interest
• D) Not undertake the investment because the expected rate of return of 4 percent is less than the real rate of interest

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Definitions:

Channel Intermediaries

Firms or individuals such as wholesalers, agents, brokers, and retailers who help move a product from the producer to the consumer or business user.

Financing

The act of providing funds for business activities, making purchases, or investing.

Logistical Function

The activities involved in obtaining, producing, and distributing materials and products in the proper place and condition at the right time.

Channel Intermediaries

Firms or individuals such as wholesalers, agents, and retailers who serve as a link between manufacturers and consumers in the distribution process.