Assume That a Machine, Which Has a Useful Life of Only

Multiple Choice

Assume that a machine, which has a useful life of only one year, costs $2,000.Also, assume that the difference between the estimated operating costs, which includes power and taxes, and the additional revenue from the output of this machine is expected to be $2,300.If the firm finds that it can borrow funds at an interest rate of 10 percent per annum, the firm should:

A) not purchase the machine because the expected rate of return exceeds the cost of borrowing.
B) purchase the machine because the expected rate of return exceeds the cost of borrowing.
C) not purchase the machine because the cost of borrowing exceeds the expected rate of return.
D) purchase the machine because the cost of borrowing exceeds the expected rate of return.