Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current market value of $4 million. Bowen owes his local bank $3 million. Last year Bowen sold $5 million worth of cotton. His variable operating costs were $4.5 million; accounting depreciation was $40,000, although the actual decline in value of Bowen's machinery was $60,000 last year. Bowen paid himself a salary of $50,000, which is not considered part of his variable operating costs. Interest on his bank loan was $400,000. If Bowen worked for another farmer or a local manufacturer, his annual income would be about $30,000. Bowen can invest any funds that would be derived if the farm were sold to earn 10 percent annualy. (ignore taxes.) a. Compute Bowen's accounting profits. b. Compute Bowen's econnomic profits.

Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current market value of $4 million. Bowen owes his local bank $3 million. Last year Bowen sold $5 million worth of cotton. His variable operating costs were $4.5 million; accounting depreciation was $40,000, although the actual decline in value of Bowen's machinery was $60,000 last year. Bowen paid himself a salary of $50,000, which is not considered part of his variable operating costs. Interest on his bank loan was $400,000. If Bowen worked for another farmer or a local manufacturer, his annual income would be about $30,000. Bowen can invest any funds that would be derived if the farm were sold to earn 10 percent annualy. (ignore taxes.) a. Compute Bowen's accounting profits. b. Compute Bowen's econnomic profits.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 2E

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Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current market value of $10 million. Bowen owes his local bank $7 million. Last year Bowen sold $9 million worth of cotton. His variable operating costs were $7 million; accounting depreciation was $40,000, although the actual decline in value of Bowen's machinery was $60,000 last year. Bowen paid himself a salary of $50,000, which is not considered part of his variable operating costs. Interest on his bank loan was $400,000. If Bowen worked for another farmer or a local manufacturer, his annual income would be about $30,000. Bowen can invest any funds that would be derived if the farm were sold to earn 10% annually. (Ignore taxes.) What is Bowen's accounting profit? $1,210,000.00 $1,550,000 $1,560,000 $1,220,000.00 What is Bowen's economic profit? $1,210,000.00 $1,560,000 $1,550,000 $1,220,000.00
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