Scenario 12-4
Suppose that Abdul opens a coffee shop.He receives a loan from a bank for $100,000.He withdraws $50,000 from his personal savings account.The interest rate on the loan is 8%,and the interest rate on his savings account is 2%.
-Refer to Scenario 12-4.Abdul's explicit cost of capital is
A) $8,000.
B) $4,000.
C) $2,000.
D) $1,000.

Question

Quizplus · Accepted Answer

Abdul's explicit cost of capital is the interest he pays on the loan, which is 8% of $100,000, or $8,000. There is no explicit cost associated with withdrawing money from his savings account, as he is not borrowing that money. Therefore, his total explicit cost of capital is $8,000.

Scenario 12-4 Suppose That Abdul Opens a Coffee Shop.He Receives a Loan