Question

Assume that a national restaurant chain called BBQ builds 10 new restaurants at a cost of $1 million per restaurant. It outfits each restaurant with an additional $300,000 of equipment and furnishings. To help partially defray the cost of this expansion, BBQ issues and sells 200,000 shares of stock at $35 per share.

a. What is the amount of economic investment that has resulted from BBQ’s actions? $ million.
b. How much purely financial investment took place? $ million.

Answer 1

Answer and Explanation:

The computation is shown below:

a. The economic investment amount is

= Number of resturants × cost per resturant + number of resturant × additional cost

= 10 × $1,000,000 + 10 × $300,000

= $10,000,000 + $3,000,000

= $13,000,000

b. The amount in financial investment took place is

= Number of shares × per value share

= 200,000 shares × $35 per share

= $7,000,000