Fresh Flour makes baking flour and sells its flour in 4 pound sacks or bags. The managers of Fresh Flour are considering whether the firm should make or buy the flour sacks. To make the sacks, Fresh Flour needs a $500,000 piece of equipment. Using this equipment, Fresh Flour can make a flour sack for $0.01 and, for simplicity, ignore taxes and assume that the $0.01 cost includes depreciation and
all other costs. Fresh Flour would finance the $500,000 investment using its own funds and, if it purchased the flour sacks from another firm, it would pay $0.19 a flour sack. The life span of the equipment is 10 years and it has no salvage value at the end of the ten years. If the discount rate is 6 percent and the firm needs 400,000 flour sacks a year, what is the present value of the equipment?
A) $623,850
B) $459,250
C) $500,962
D) $529,926
D) $529,926
You might also like to view...
Refer to Figure 11.5. An increase in the marginal propensity to import is best illustrated by diagram
A) A. B) B. C) C. D) D.
What are the main features of the Harris-Todaro model of rural-urban migration?
What will be an ideal response?
Suppose you have money to lend, but will do so only if you are compensated for the risk of default. If you set a high interest rate on your loan, a likely consequence is that ________
A) safe borrowers will look elsewhere, and only risky borrowers will find your terms attractive B) risky borrowers will look elsewhere, so your money is more likely to go to a safe borrower C) competition from other lenders will force you to lower your interest rate D) you will be prosecuted for predatory lending
When expectations of inflation are revised upward, the short-run Phillips curve: a. shifts rightward. b. becomes steeper. c. shifts leftward
d. becomes flatter.