Flora's Flowers bought a new van last year for $10,000.It can now sell the van for $8,500.To buy this year's model it would have to pay $11,000.Flora's also had to take out a $9,000 loan to buy the van which had to be paid back in yearly installments of $3,300 per year over three years.What is the implicit rental rate of the first year's use of the van?
A)$2,800
B)$1,300
C)$1,800
D)$13,300
E)$4,800

Question

Quizplus · Accepted Answer

The implicit rental rate is the cost of using the asset for one year. To calculate this, we need to consider the cost of buying the van, the amount it can be sold for, and any additional costs or income associated with owning the van, such as the loan payments and maintenance expenses.

First, let's calculate the total cost of owning the van for one year:
- Purchase price: $10,000
- Loan payments: $3,300
- Depreciation (the decrease in value of the van over one year): ($10,000 - $8,500) = $1,500

Total cost: $10,800

Now, let's calculate the implicit rental rate:
Implicit rental rate = Total cost / Purchase price
Implicit rental rate = $10,800 / $10,000
Implicit rental rate = 1.08

Multiplying by 100 to convert to a percentage, the implicit rental rate is 108%.

Therefore, the answer is C.

Flora's Flowers Bought a New Van Last Year for $10,000