Question

Torque Engine Company is considering opening a plant in China. It will cost

$3,800,000

to set up the plant and

$740,000

to train employees. An additional

$150,000

will be spent to build relationships with the local suppliers. The company anticipates gross profit of

$4,900,000

from this new plant. Do the benefits outweigh the costs or do the costs outweigh the​ benefits, and by how​ much?

A.Benefits outweigh costs by$210,000.

B.Benefits outweigh costs by$360,000.

C.Costs outweigh benefits by$210,000.

D.Costs outweigh benefits by$360,000.

Answer 1

Answer: A. Benefits outweigh costs by $210,000

.

.

Benefits from the project   (Gross profit)	$4,900,000
Total cost of the project   [Refer working note below]	$4,690,000
Net benefit                       [$4,900,000 - $4,690,000]	$210,000

.

.

Working note - Total cost of the project
Cost to set up the plant	$3,800,000
Cost to train employees	$740,000
Cost to build relationships with the local suppliers.	$150,000
Total cost of the project	$4,690,000