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Author Question: Suppose that Mighty Mike's Sandwich Shop was started in 1998 and 100 percent of the 250,000 needed ... (Read 86 times)

V@ndy87

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on: Jun 29, 2018
Suppose that Mighty Mike's Sandwich Shop was started in 1998 and 100 percent of the 250,000 needed to start up the company was raised by selling shares of stock. In 2000, the company distributed its entire profit of 15,000 to shareholders.
 
  If the market interest rate is 5 percent, what is the level of economic profit earned by the firm's stockholders?

Question 2

Refer to Figure 4-1. What is the total amount that Kendra is willing to pay for 3 ice cream cones?
 
  A) 2.50 B) 7.50 C) 9.00 D) 13.50


lauravaras

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Reply #1 on: Jun 29, 2018
Answer to Question 1

If the market rate of interest is 5 percent, then the opportunity cost of capital is 12,500 (250,000  0.05). Therefore, the shareholders are earning an economic profit of 2,500.

Answer to Question 2

C


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