Suppose a Mechanic Uses $150,000 of His Own Money to Start

question 56

Multiple Choice

Suppose a mechanic uses $150,000 of his own money to start a business. The rate of interest he could earn in a savings account is 5 percent, and the rate of interest he could earn by investing in bonds is 8 percent. What is the opportunity cost of capital when the mechanic uses his money to start his own business?

• A)$8,000/year
• B)$7,500/year
• C)$150,000
• D)$12,000/year
• E)$19,500/year

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Definitions:

Invoice

A document issued by a seller to a buyer that lists goods or services provided, prices, and payment terms.

Ledger

A comprehensive collection of a company's financial transactions, organized by account.

Net Income

The total earnings a company makes after all expenses and taxes have been deducted from revenue.

Stockholders' Equity

Stockholders' equity represents the residual interest in the assets of a corporation after deducting its liabilities, essentially the net worth attributable to shareholders.