Baker Corporation Is Considering Buying a New Donut Maker

question 98

Multiple Choice

Baker Corporation is considering buying a new donut maker. This machine will replace an old donut maker that still has a useful life of 4 years. The new machine will cost $3,500 a year to operate, as opposed to the old machine, which costs $3,900 per year to operate. Also, because of increased capacity, an additional 10,000 donuts a year can be produced. The company makes a contribution margin of $0.15 per donut. The old machine can be sold for $6,000 and the new machine costs $28,000. The incremental annual net cash inflows provided by the new machine would be:

• A)$1,500
• B)$400
• C)$1,900
• D)$7,000

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Definitions:

Maximizing Law

The principle that organisms will choose behaviors that maximize rewards and minimize penalties under conditions of uncertainty.

Blisspoint

The optimal level of satisfaction or happiness an individual achieves from a specific action or set of circumstances, often used in consumer behavior studies.

Respond

To react or reply to something, typically as a result of external stimuli.

Matching Law

A theory stating that the proportion of responses directed towards one alternative corresponds to the proportion of reinforcements received from that alternative.