The Cost of Using an Existing Asset: Small Appliances, Inc

question 26

Multiple Choice

The cost of using an existing asset: Small Appliances, Inc., 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:

Breccia

A rock composed of broken fragments of minerals or rock cemented together by a fine-grained matrix.

Rock Characteristics

The inherent properties and features of rock, including texture, mineral content, and permeability among others.

Angular Clasts

Angular clasts are pieces of rock that have sharp edges and points, indicating they have not been traveled far from their source because they have not been significantly worn down by erosion.

Breccia

A type of rock consisting of angular fragments of minerals or rocks cemented together by a finer-grained matrix, often formed by volcanic or tectonic actions.