Chapter 1 Application Exercise Part 2

A  The difference between the Accounting Net Benefit(Car Loan) and the MB(Car Loan).

B  The percentage point difference (spread) between the interest paid rate in the bank account and the car loan interest rate

C  None of the available answers

D  The difference between the Accounting Net Benefit(No Car Loan) and the MB(Car Loan).

A  (Spread) x (Cost of the car)= .05 x $20,000 = $1,000

B  (Spread) x (Cost of the car)= .06 x $20,000 = $1,200

C  (Spread) x (Cost of the car)= -.03 x $20,000 = -$600

D  (Spread) x (Cost of the car)= -.02 x $20,000 = -$400

A  Spread= 5%-4%= 1%

B  Spread= 2%-4%= -2%

C  Spread= 6%-4%= 2%

D  Spread= 1%-4%= -3%

A  She should choose the car loan scenario. This is because the Economic Net Benefit(Car Loan)= $600, which means that she will gain an additional $600 if she takes out a car loan versus paying the car off.

B  None of the available answers

C  She should choose the no car loan scenario. This is because the Economic Net Benefit(No Car Loan)= $600, which means that she will gain an additional $600 if she pays the car off versus taking out a car loan.

D  She should do neither because it is always better to save instead of consuming items.

A  $600

B  -$600

C  $2,400

D  $1,200

A  None of the available answers

B  The car loan scenario has a positive economic profit, but the no car loan scenario has a negative economic profit

C  The no car loan scenario

D  The car loan scenario

A  Accounting Net Benefit( No Car Loan) = $2,000

B  Economic Net Benefit(Car Loan) = -$600

C  Economic Net Benefit(No Car Loan) = $600

D  Accounting Net Benefit(Car Loan) = $1,400

A  Economic Net Benefit(No Car Loan) = $600

B  Economic Net Benefit(Car Loan) = -$600

C  Accounting Net Benefit(Car Loan) = $1,400

D  Accounting Net Benefit( No Car Loan) = $2,000

A  None of the available answers

B  The car loan scenario has a negative accounting net benefit, while the no car loan scenario has a positive accounting net benefit

C  The no car loan scenario has a negative accounting net benefit, while the car loan scenario has a positive accounting net benefit

D  Both scenarios have a positive accounting net benefit

A  Economic Net Benefit(Car Loan) = $2,000-$2,000= $0

B  Economic Net Benefit(Car Loan) = $1,400-$2,800= -$1,400

C  Economic Net Benefit(Car Loan) = $2,600-$2,000= $600

D    

E  Economic Net Benefit(Car Loan) = $1,400-$2,000= -$600

A  Economic Net Benefit(No Car Loan) = $1,400-$2,200= -$800

B  Economic Net Benefit(No Car Loan) = $2,080-$2,000= $80

C  Economic Net Benefit(No Car Loan) = $2,000- $1,400=$600

D  Economic Net Benefit(No Car Loan) = $1,400-$2,000= -$600

A  Accounting Net Benefit(Car Loan) = $22,200-$20,800= $1,400

B  Accounting Net Benefit(Car Loan) = $20,800-$22,000= -$1,200

C  Accounting Net Benefit(Car Loan) = $20,800-$20,800= $0

D  Accounting Net Benefit(Car Loan) = $22,200-$22,200= $0

A  MB(Car Loan) = $22,200; MC(Car Loan) = $20,800

B  MB(Car Loan) = $20,800; MC(Car Loan) = $22,200

C  MB(Car Loan) = $22,800; MC(Car Loan) = $20,800

D  MB(Car Loan) = $20,800; MC(Car Loan) = $20,800

A  Accounting Net Benefit(No Car Loan) = $20,800- $20,000= $800

B  Accounting Net Benefit(No Car Loan) = $20,000- $20,000= $0

C  Accounting Net Benefit(No Car Loan) = $22,000- $20,000= $2,000

D  Accounting Net Benefit(No Car Loan) = $22,000- $20,800= $1,200