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. The discount rate is 6 percent. How many flour sacks does Fresh Flour need each year in order for the net present value to be positive?
A) 259,666
B) 377,416
C) 352,589
D) 412,369
B) 377,416
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According to the Bureau of Economic Analysis, household disposable income fell by 0.3 percent of August, 2012. If all else remains the same, what is the likely impact of this fall on the real interest rate?
A) The real interest rate will rise. B) The real interest rate will fall. C) A change in household disposable income will have no impact on the real interest rate. D) The impact on the real interest rate is ambiguous.
If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's excess reserves will:
A. increase by $100,000. B. increase by less than $100,000. C. not change. D. decrease by less than $100,000.
If Japan has an absolute advantage over the United States in making TVs, then Japan:
A. probably sells TVs to the United States. B. it will have no reason to trade with the US. C. produces more TVs than the United States using the same resources. D. has the ability to produce TVs at a lower opportunity cost than the United States.
An increase in consumer wealth will decrease aggregate demand.
Answer the following statement true (T) or false (F)