The Interest Rate Is 10

question 22

Multiple Choice

The interest rate is 10%.A certain piece of land can be used for a parking lot, in which case there are no construction costs and it will yield a net return of $5,000 per year forever starting one year from now.Or it can have a house built on it.Building a house would cost $50,000 now.If a house is built on the lot, it will yield a stream of net income equal to $12,000 per year starting one year from now.No other uses are contemplated.The theory of asset markets predicts that the lot will sell for

• A)$120,000 and a house will be built on it.
• B)$50,000 and it will be used as a parking lot.
• C)$70,000 and a house will be built on it.
• D)$13,200 and a house will be built on it.
• E)$80,000 and it will be used as a parking lot.

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Definitions:

Centralized Business Organization

A management structure where decision-making authority is concentrated at the top levels of the organization, with few people responsible for making decisions and setting policies.

Major Planning

Major planning involves the development of comprehensive strategies and objectives to guide an organization or project towards achieving its long-term goals.

Cost Center

A decentralized unit in which the department or division manager has responsibility for the control of costs incurred and the authority to make decisions that affect these costs.

Revenues

Increases in owner’s equity as a result of providing services or selling goods to customers.