You work for a nuclear research laboratory that is contemplating leasing a diagnostic
scanner (leasing is a very common practice with expensive, high-tech equipment). The
scanner costs $2 million and it would be depreciated straight-line to zero over 4 years.
Because of radiation contamination, it will actually be completely valueless in 4 years.
You can lease it for $600,000 per year for 4 years. Assume your company does not
contemplate paying taxes for the next several years. You can borrow at 6 percent before
taxes. What is the net advantage to leasing from your company's standpoint?
Which one of the following statements concerning net working capital is correct?
A. The lower the value of net working capital the greater the ability of a firm to meet its
B. An increase in net working capital must also increase current assets.
C. Net working capital increases when inventory is sold for cash at a profit.
D. Firms with equal amounts of net working capital are also equally liquid.
E. Net working capital is a part of the operating cash flow.
The Metal Shop produces 1.8 million metal fasteners a year for industrial use. At this
level of production, its total fixed costs are $378,000 and its total costs are $522,000.
The firm can increase its production by 5 percent, without increasing either its total
fixed costs or its variable costs per unit. A customer has made a one-time offer for an
additional 50,000 units at a price per unit of $0.10. Should the firm sell the additional
units at the offered price? Why or why not?
A. yes; The offered price is less than the marginal cost.
B. yes; The offered price is equal to the marginal cost.
C. yes; The offered price is greater than the marginal cost.
D. no; The offered price is less than the marginal cost.
E. no; The offered price is greater than the marginal cost.