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You Start Your Own Business Selling Boating Equipment

question 26

Essay

You start your own business selling boating equipment. To start the business you sell 5,000 shares of stock at $50 each. This year the revenues from the business are $300,000, and total costs of operating the business are $200,000. All profits are paid out as dividends to the shareholders. If the current interest rate is 20%, what is the economic profit being earned by the shareholders? What will happen to the amount of economic profits earned if the interest rate decreases? Explain your answer.

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Definitions:

Conduction

The process by which heat or electricity is directly transmitted through a substance when there is a difference of temperature or electrical potential.

Subduction Zone

A region where one tectonic plate moves under another, leading to volcanic activity and earthquakes.

Lithosphere

The rigid outer layer of the Earth, consisting of the crust and the uppermost part of the mantle, directly involved in plate tectonics and continental drift.

Asthenosphere

A region of the upper mantle of the Earth, below the lithosphere, where rocks are relatively soft and can flow slowly.

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