Why Is the Personal Decision a Financial Manager Makes as to Whether

question 20

Multiple Choice

Why is the personal decision a financial manager makes as to whether to buy or to rent an apartment as a personal residence most like the professional decision that manager makes as to whether her firm should try to acquire a stake in a fast growing new Internet-based company?

• A) Both decisions involve the purchase of assets that are essential for the existence of the investor.
• B) Both decisions involve the rental of a useful asset.
• C) Both decisions have the potential to affect the firm.
• D) Both decisions should be made based upon the tradeoff benefits and costs across time.

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Definitions:

Producer Surplus

The difference between the amount producers are willing to accept for a good or service versus what they actually receive, usually a measure of profit.

Market Price

The price at which a service or asset is presently traded in a given market.

Full Cost

Full cost involves calculating the total cost of production, including both fixed and variable costs, to assess the overall expenses incurred by a business.

Consumer Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay, representing the benefit to consumers from market transactions.