Question

A firm is considering replacing a manufacturing machine on its production floor. If the firm accepts this project, the firm will sell the old manufacturing machine. Selling the old machine represents an opportunity cost for this project that will be subtracted from the initial free cash flow.

A) True
B) False

Answer 1

Answer:

The correct answer is false.

Explanation:

Companies have to make decisions that have consequences at the level of benefits, if the right decision is not made, it may result in having less profit than they could have had. In this case, when replacing the machine, the opportunity cost would be positive, so the company would not obtain a sufficient profit.