This Question: 1 pt Suppose that in the year 2015, Oceanaire,Inc. planned to pro

Question

This Question: 1 pt Suppose that in the year 2015, Oceanaire,Inc. planned to produce 525,000 units of its lightweight scuba tanks. Of the 525,000 it planned to produce, a total of 25,000 units would be added to the inventory at its new plant in Arizona. Also assume that these units have been selling at a price of $225 each and that the price has been constant over time. Suppose further that this year the firm buit a new plant for $4 million and acquired $2.5 million worth of equipment. It had no other investment projects, and to avoid complications, assume no depreciation Now suppose that at the end of the year, Oceanaire had produced 525,000 units but had only sold 485,000 units and that inventories now contained 40,000 units more than they had at the beginning of the year At $225 each, that means that the firm added $9,000,000 in new inventory his year Ocsanaire achualy Invested Enter your mesponse as an integer) Ocnanaire planned to Invest (Enter your response as an integer) Oceanaire should produce A more oulpul next year sinvoa it neods to ads to ts unplanned inveutment ? B. less output next year since?noods to reduce its equipment. O D. more outpul next year since it needs to add to its equioment Click to select your answerls) OC less output next year since it neads to roduce ts unplanned irvestment

Explanation / Answer

Along with the investments of $4 million and $2.5 million the value of closing inventory should also be counted as investment because closing inventory is asset not income.

Thus, total investment made = 4000000 + 2500000 + 9000000 = $15.5 million

Planned to invest = 4000000 + 2500000 + 25000*225 = $12.125 million

It should produced 'Less output next year since it needs to reduce the unplanned investment next year'. option C is true.

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