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 implicit cost of capital is
A)$2,000.
B)$4,000.
C)$12,000.
D)$14,000.

Question

Quizplus · Accepted Answer

The implicit cost of capital is the return that Emily could have earned on her savings if she had not invested it in the restaurant. The interest rate on her savings account is 2%, so the implicit cost of capital is $100,000 x 0.02 = $2,000.

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