Assume the Following: (1) the Real Cost of a Unit

question 52

Multiple Choice

Assume the following: (1) the real cost of a unit of capital is one; (2) the unit of capital is expected to increase a firm's real profit by $10,000 each year, and depreciate by 10% each year; and (3) the real interest rate is 2%. What is the "user cost" or "rental cost" of this unit of capital?

• A) 0.09.
• B) 0.03.
• C) 0.12.
• D) 0.15.
• E) 0.18.

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Definitions:

Fair Values

The estimated market value of an asset or liability, based on current prices in an open and competitive market.

Credit Balance

A situation in accounting where the sum of credits in a ledger account exceeds the sum of debits. It often indicates an amount owed to the account holder.

Contingency Payment

A payment that is contingent upon the occurrence of a specific event, not guaranteed to happen.

Common Stock

A form of corporate equity ownership, a type of security that represents ownership in a corporation, giving shareholders voting rights and a share in the company's profits via dividends.