A Foreign Exchange Student Bought a Used Car for $10,000

question 206

Multiple Choice

A foreign exchange student bought a used car for $10,000 and resold it one year later for $6,500. Insurance, license, and operating costs for the year were $1,500. What was his economic cost of owning and operating the car for the year if the market rate of interest was 10 percent?

• A) $3,500
• B) $5,000
• C) $6,000
• D) $8,500

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Definitions:

Operating Assets

Assets that are used in the day-to-day operations of a business to generate revenue.

Return On Investment

A financial metric used to evaluate the efficiency of an investment, calculated as net profit divided by the cost of the investment.

Incentive Compensation

A form of performance-based pay where employees receive additional compensation for meeting or exceeding targets or metrics.

Balanced Scorecard

A strategic planning and management system used for aligning business activities to the vision and strategy of the organization, improving internal and external communications, and monitoring organizational performance against strategic goals.