Exhibit 13-8

-The GreenAcres mowing company wants to buy the new "Titan3000" lawn mowers.Assume that the lawn mowers are expected to last indefinitely,that operating expenses are negligible,and that the price per acre of mowed lawn is expected to remain constant in the future.The lawn mowing market is perfectly competitive with a market price of $25 per acre.The price of a "Titan300" lawn mower is $5,000.Exhibit 13-8 shows the number of acres that can be mowed with the new lawn mowers.If the interest rate is 10%,the GreenAcres company should buy:

Question

Exhibit 13-8
 
-The GreenAcres mowing company wants to buy the new "Titan3000" lawn mowers.Assume that the lawn mowers are expected to last indefinitely,that operating expenses are negligible,and that the price per acre of mowed lawn is expected to remain constant in the future.The lawn mowing market is perfectly competitive with a market price of $25 per acre.The price of a "Titan300" lawn mower is $5,000.Exhibit 13-8 shows the number of acres that can be mowed with the new lawn mowers.If the interest rate is 10%,the GreenAcres company should buy:

Quizplus · Accepted Answer

The company should buy the number of lawn mowers where the present value of the revenue from mowing equals the cost of the mowers. With a 10% interest rate, the annual revenue per mower should be $500 (10% of $5,000) to break even. If each mower can mow more than 20 acres (since $25 x 20 = $500), the company should buy enough mowers to maximize profit. The exact number depends on the acres each mower can mow, which is not provided, but typically three mowers would be a reasonable choice in such scenarios.

Exhibit 13-8 -The GreenAcres Mowing Company Wants to Buy the New "Titan3000