Asked by Logan Jordan on Jul 22, 2024
Verified
You borrow $10,000 at an interest rate of 5% to open Movies Galore, a DVD rental store. You will earn an economic profit if the return on your investment is
A) between 0 and 5%.
B) 5%.
C) greater than 5%.
D) only greater than 10%.
Economic Profit
The variance identified between overall proceeds and all-inclusive financial outgoings, inclusive of both explicit and veiled costs.
Investment Return
The gain or loss on an investment over a specified time period, expressed as a percentage of the investment's initial cost.
- Compute the economic gain or deficit by evaluating investment yields and rates of interest.
Verified Answer
A_
Aydah _ AFGJul 28, 2024
Final Answer :
C
Explanation :
Economic profit occurs when the return on investment exceeds all costs, including the opportunity cost of capital. Here, the opportunity cost is the 5% interest rate, so earning more than 5% means making an economic profit.
Learning Objectives
- Compute the economic gain or deficit by evaluating investment yields and rates of interest.