Asked by seydi ortiz on Jul 23, 2024
Verified
You borrow $75,000 at an interest rate of 3% to open Spinners, a bicycle shop. You will earn an economic profit if the return on your investment is
A) greater than 3%.
B) 3%.
C) between 0 and 3%.
D) 6% or less.
Economic Profit
The contrast between earnings from outputs sold and the opportunity cost of using specific inputs.
Interest Rate
The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the outstanding loan.
- Assess the projected rate of return and its influence on investment decision processes.
Verified Answer
TB
Tamahene BenavidezJul 24, 2024
Final Answer :
A
Explanation :
Economic profit occurs when the return on investment exceeds all costs, including the interest rate on borrowed funds. If the return is greater than the 3% interest rate, it means you're covering the cost of borrowing and making additional profit.
Learning Objectives
- Assess the projected rate of return and its influence on investment decision processes.