Question 4. For the following, please answer \"True\" or \"False\" and explain w

Question

Question 4. For the following, please answer "True" or "False" and explain why.

a)When buying a piece of equipment, it is always best for the firm to pay cash instead of borrowing the funds since this renders the equipment less costly.

b)University of Toronto is choosing a location for a new building. The university has campuses at Downtown, Scarborough and Mississauga. A large parcel of land would have to be purchased at Scarborough or Mississauga if the building were to be built there. So it is cost-effective to locate the new building at downtown because the university already owns the land.

Explanation / Answer

Ans. This is an interesting question , Let's start answering it :

a) This statement is FALSE , because it depends from situation to situation. If the interest rate we would receive from the Cash Reserve , when we don't buy the Equipment with Cash is Higher than the interest rate to be paid by borrowing. Then firms would prefer borrowing , because they would be having Excess Income from the Interest Received from Cash Reserve.

b) TRUE , Yes if we see in terms of Cost Saving and Efficiency , it would be Cost Effective to locate the building at Downtown because the university is already having land there , if building have to be build in Scarborough or Mississauga , then they would have to buy new land which would have been Costly for the University as compared to Downtown.

I hope you understood the answer. Do ask in case of doubts.

A Thumsup would be Highly Appreciated !!

Best of Luck !! Keep Chegging !!

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.