Final answer:
Investment analysis involves assessing future cash flows against hurdle rates as in the case of Pickwick Inc., while shutdown decisions like those faced by a raspberry farm depend on comparing prices with average variable costs.
Step-by-step explanation:
Investment Decision Making and Shutdown Decisions
When Pickwick Inc. is considering an investment like a combine harvester machine, they must analyze the cash flows and compare them with the hurdle rate to make a profitable decision. Similarly, The Gizmo Company must consider the potential returns on their investments in new household gadgets. If the returns are adequate, considering the additional social benefits, the investment might be seen as favorable.
In contrast, a farm producing raspberries must decide whether to continue operations or shut down based on price and costs. If the price covers the average variable cost and contributes to the fixed costs, it makes sense to continue, but if the price falls below average variable costs, it may be best to shut down to minimize losses.
Understanding these concepts is crucial for managing a company's financial health and ensuring that investment choices provide the necessary returns, or in some cases, prevent further losses by making prudent shutdown decisions.