Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506893
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 14, Problem 14CQ
To determine
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Elroy Harris is considering whether to buy a corn and soybean farm in Iowa. The farm will cost $800,000, and Xander will be able to pay this from profits his recently deceased mother made on the stock market and willed to him. He estimates that if he does not run the farm, and keeps his current job as an economic forecaster, he will be able to earn $40,000 a year. The prevailing interest rate is 9 percent. Xander’s only motive is to maximize his income. His accountant tells him the annual profit from the farm is likely to be depending on certain conditions and assuptions:
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Microeconomics: Private and Public Choice (MindTap Course List)
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- Jack’s Lock and Key are considering remodeling. It estimates that the remodeling will cost $6,000 and that as a result revenues will rise by $3,000 the first year, $2,500 the second year, $1,500 the third year, and have no effect after then. If the interest rate is 5%, should Jack’s remodel? Defend your answer by showing your work.arrow_forwardUnder the simple conditions spelled out in class, if a bond is to pay off $324 in exactly one year from now, and the market interest rate is 8 percent, the price of the bond today is . $241 $4050 $350 $300 $288arrow_forwardWhen the interest rate in the economy was 10 percent, the price of a bond with no expiration date that paid a fixed annual interest of $500 was $5,000. If the interest rate in the economy falls to 6 percent, the price of this bond will be about Multiple Choice $4,700. $5,030. $7,128. $8,333.arrow_forward
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