Scenario 13-5
Suppose that Emily opens a restaurant. She receives a loan from a bank for $200,000. She withdraws $100,000 from her personal savings account. The interest rate on the loan is 6%, and the interest rate on her savings account is 2%.
-Refer to Scenario 13-5. Emily's annual explicit cost of capital is
A)$2,000.
B)$4,000.
C)$12,000.
D)$14,000.

Question

Quizplus · Accepted Answer

The explicit cost of capital is the interest Emily pays on the bank loan. The loan amount is $200,000 with an interest rate of 6%, resulting in an annual explicit cost of $12,000 (0.06 * $200,000).

Scenario 13-5 Suppose That Emily Opens a Restaurant. She Receives a Loan