Bruceton's Is a Specialty Retailer with Multiple Brick-And-Mortar Stores and a Cost

question 89

Multiple Choice

Bruceton's is a specialty retailer with multiple brick-and-mortar stores and a cost of capital of 16.4 percent.Specialty Imports is a wholesaler of specialty items and has a cost of capital of 12.6 percent.Both firms are considering opening a new store in downtown Chicago at a cost of $1.1 million.Because this type of store would be trendy, it would have a life of only 8 years and no salvage value.The expected annual net cash flow is $229,000, regardless of which firm opens the store.Which company(ies) , if either, should open the Chicago store?

• A)Bruceton's only
• B)Specialty Imports only
• C)Neither company
• D)Both companies
• E)The answer cannot be determined based on the information provided.

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Definitions:

Excess Supply

A situation where the quantity of a good supplied is greater than the quantity demanded at the current price.

Good Y

A non-specific term used in economic models to represent a product or service, usually contrasted with another good, referred to as "Good X."

Fertilizer Prices

The cost for fertilizers, which are chemical or natural substances added to soil to improve its fertility and the growth of plants.

Supply Of

Refers to the total amount of a product or service that is available for purchase at any given price point in a given market.