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

question 58

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 8% each year (δ = .08) ; and (3) The real interest rate is 2% (r = .02) .What is the "user cost" or "rental cost" of this unit of capital?

• A)0.02
• B)0.06
• C)0.10
• D)0.08 / .02 = 4
• E) none of the above

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Definitions:

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been deducted from revenues.

Variable Costs

Expenses that change in proportion to the production or sales figures, like direct labor and raw materials.

Break-Even Point

The level of activity or sales volume at which total revenues equal total costs, resulting in no net loss or gain.

Automated Equipment

Machinery and tools that operate with minimal human intervention, often used to enhance efficiency in manufacturing or production processes.