Refer to Scenario 9

question 274

Multiple Choice

Refer to Scenario 9.9 below to answer the question(s) that follow.
SCENARIO 9.9: Sponsors invest $250,000 in a new greeting card business on the promise that they will earn a return of 10% per year on their investment. The business sells 52,000 greeting cards per year. The fixed costs for the business include the return to investors and $79,000 in other fixed costs. Variable costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($3,000 per week) . The business is open 52 weeks per year.
-Refer to Scenario 9.9. The profit for the business is ________ when the average price per greeting card is $7.50.

• A) $78,000
• B) $182,000
• C) $286,000
• D) $311,000

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Definitions:

Risk-Free Assets

Investments that are considered to carry no risk of financial loss, typically represented by government bonds or treasury bills.

Equity Investments

Investments in stocks or shares, representing ownership in a company or entity and participation in its profits.

Risk Free Rate

The rate of return on an investment with no risk of financial loss, typically represented by the yield on government bonds.

Market Premium

The additional return an investor expects to receive from a market portfolio compared to the risk-free rate.