Scenario 13-4
Suppose that Abdul opens a coffee shop. He receives a loan from a bank for $100,000. He withdraws $50,000 from his personal savings account. The interest rate on the loan is 8%, and the interest rate on his savings account is 2%.
-Refer to Scenario 13-4. Abdul's annual explicit cost of capital is
A)$8,000.
B)$4,000.
C)$2,000.
D)$1,000.

Question

Quizplus · Accepted Answer

Abdul's annual explicit cost of capital is the interest he pays on the loan plus the opportunity cost of not earning interest on the money he withdrew from his savings account. 
Interest on the loan = $100,000 x 8% = $8,000 
Opportunity cost on the savings = $50,000 x 2% = $1,000 
Total = $8,000 + $1,000 = $9,000 
Therefore, the annual explicit cost of capital is $8,000.

Scenario 13-4 Suppose That Abdul Opens a Coffee Shop. He Receives a Receives