Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
ABC CO. is considering replacing a production line with a new, more productive one. You are given the information that follows.
• The existing production line currently generates $100,000 profit per year and could be sold today for $40,000.
• The new proposed production line would generate profits of $150,000 per year
• The new proposed production line requires an initial investment $80,000.
• The company is seeking your advice regarding whether to replace the production line or keep the existing one.
Required:
a) Based on the Marginal analysis concept, what would you recommend?
b) State the reasons why focusing on profit only should not be the optimal goal for companies.
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