When a firm is making a decision about whether to purchase a new piece of physical capital,it is necessary to evaluate the ________ of services it delivers.The concept of ________ allows the firm to determine how much it would be willing to pay for the new piece of physical capital.

Question

Quizplus · Accepted Answer

When making a decision to purchase new physical capital, it is necessary to evaluate the flow of services it can deliver, which refers to the expected annual stream of benefits from the asset. The concept of present value allows the firm to determine the maximum amount they would be willing to pay for the capital asset. Present value is computed by discounting the expected future cash flows of the asset to their current value, taking into account the time value of money.

When a Firm Is Making a Decision About Whether to Purchase