The Cost of Using an Existing Asset: Small Appliances Ltd

question 15

Multiple Choice

The cost of using an existing asset: Small Appliances Ltd is considering starting a new line of business with the excess capacity it currently has on its rivet machine. The current machine is expected to last four years at the current rate of production. However, if a new line of business is taken on, then the machine will have to be replaced in three years instead of four. A new machine that will last four years would cost $50,000. What is the cost of taking on the new line of business? Round to the nearest dollar and assume a 9 percent cost of capital.

• A) $11,917
• B) $12,500
• C) $15,433
• D) $50,000

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Definitions:

Adrenal Glands

Small glands located above the kidneys that produce a variety of hormones, including adrenaline and cortisol, which regulate metabolism, immune system, blood pressure, and response to stress.

Kidneys

Vital organs in the urinary system responsible for filtering waste from the blood, regulating electrolyte balance, and maintaining fluid balance.

Catecholamines

A class of chemicals containing epinephrine and norepinephrine.

Epinephrine

A chemical manufactured by the adrenal medulla that accounts for much of the hormone production of the adrenal glands; sometimes called adrenaline.