EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 8, Problem 4P
To determine
Efficiency of choice.
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Suppose you bought a condo for $100,000 financing it with a $20,000 down payment of your own funds and an $80,000 mortgage loan from a bank.
Now, instead of (a) or (b), suppose the value of the condo fell from $100,000 to $70,000. Assuming you paid $100,000, financing it with $20,000 of your own money and $80,000 with a mortgage loan, and ignoring interest and other costs, calculate your rate of return on your asset (ROA) and your rate of return on equity (ROE). What is the value of your equity stake in the condo after the price fall?
Suppose a person has a total credit card debt of $1,380 that has a 15 % yearly interest rate. This person also has a savings account with $3,000
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Calculate how many times the person appreciates the $1 of savings more than $1 of credit card debt if the person relates similarly to both values of
percent paid and received. Enter your answer in the box below and round to two decimal places if necessary.
Answer 2 Pan
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After graduation, you face a choice. You can work for a multinational consulting firm and earn a starting salary (including benefits) of
$40,000, or you can start your own consulting firm using $5,000 of your own savings. If you keep your money in a savings account,
you can earn an interest rate of 7 percent. You choose to start your own consulting firm. At the end of the first year, you add up all of
your expenses and revenues. Your expenses include $14,000 for rent, $1,000 for office supplies, $24,000 for labor, and $4,500 for
telephone expenses. After operating your consulting firm for a year, your total revenues are $88,000.
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a. What is your accounting profit?
$
b. What is your economic profit?
$
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