Question

Suppose that Abdul opens a coffee shop. He receives a loan from a bank for $100,000. He withdraws $50,000 from his personal savings account. The interest rate on the loan is 8%, and the interest rate on his savings account is 2%.

What is Abdul's implicit cost?

Answer 1

The correct answer is $1,000.

Step-by-step explanation:

According to the scenario, the computation of the given data are as follows:

Receives a loan = $100,000

Withdraws = $50,000

Interest rate = 2%

So, we can calculate the implicit cost by using following formula:

Implicit cost = Withdrawal amount × Tax rate

By putting the value, we get

Implicit cost = $50,000 × 2%

= $1,000