A firm has 350 million in revenues and explicit costs of 150 million. If its owners have invested 150 million in the company at an opportunity cost of 10 percent a year, the firm's economic profit is:
a. 50 million.
b. 150 million.
c. 185 million.
d. 200 million.
Question 2
Why are bonds less risky than stocks?
a. The dividend given on shares is usually less than the coupon-rate on bonds.
b. Bonds can be issued only by the government whereas shares are issued by private firms.
c. Bondholders have a claim on the assets of the firm whereas the shareholders do not.
d. Shareholders are entitled to a share of the company's earnings.
e. The higher the profit of the firm, the greater the share of the bondholders.
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