Martin Is in the Market for a New Television Set

question 66

Multiple Choice

Martin is in the market for a new television set.He is deciding between two sets: one is rather expensive but offers a guarantee; the other has a lower price but offers no guarantee.Martin's decision to buy the more expensive set would indicate that:

• A)Martin does not know a good deal when he sees it.
• B)Martin interpreted the guarantee as a signal of the quality.
• C)Martin should have shopped around a bit more for a better deal.
• D)Martin is not maximizing his utility.
• E)Martin has a high income.

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Definitions:

Net Present Value (NPV)

A financial metric used to evaluate the feasibility of an investment, calculated by subtracting the present value of cash outflows from the present value of cash inflows.

Capital Cost Allowance (CCA)

A tax deduction in Canada that represents a yearly depreciation charge for the cost of assets.

After-Tax Cost Savings

The reduction in expenses that result from deductions on taxes, essentially the net savings after accounting for tax effects.

Salvage Value

The estimated value at which an asset can be sold at the end of its useful life.