Shen has plans to go to an opera and already has a $100 nonrefundable, nonexchangeable, and nontransferable ticket. Now Valerie, whom Shen has wanted to date for a long time, asks him to a party. Shen would prefer to go to the party with Valerie and forgo the opera, but he doesn't want to waste the $100 he spent on the opera ticket. From the perspective of an economist, if Van decides to go to the party with Amy, what has he just done?1. Incorrectly allowed a sunk cost to influence his decision

2. Made a choice that was not optimal

3 Correctly ignored a sunk cost


Answer 1


3. Correctly ignored a sunk cost


Sunk costs refer to those costs which have been incurred in the past, which are non recoverable and which have no current or future benefits.

Sunk costs are considered as irrelevant for decision making process as they do not relate to current period and have no future implications. For example, research and development expenditure incurred in the past represents a sunk cost.

In the given case, the ticket for opera was already purchased for $100 which can now neither be recovered nor transferred. Thus this cost is irrelevant for decision making as expenditure has already been made. When Shen decided to go for a party instead of the concert, Shen has correctly ignored a sunk cost.

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Which of these statements regarding project crashing is true? Crashing is not possible unless there are multiple critical paths. Activities not on the critical path cannot become critical after crashing. Crashing shortens the project duration by assigning more resources to one or more of the critical tasks. Crashing a project often reduces the time it takes for lengthy or complex, but noncritical activities.

The average annual return on the S&P 500 Index from 1986 to 1995 was 15.8 percent. The average annual T-bill yield during the same period was 5.6 percent. What was the market risk premium during these ten years?





In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below

Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)


The Market rate of return - Risk-free rate of return) is also known as the market risk premium and the same is applied.

So, the market risk premium would be

= Average annual return - average annual t-bill yield

= 15.8% - 5.6%

= 10.20%

Here is some price information on Fincorp stock. Suppose that Fincorp trades in a dealer market. Bid Ask 55.25 55.50 a. Suppose you have submitted an order to your broker to buy at market. At what price will your trade be executed





The bid price is $55,25 is the price applicable to investors would intend to sell their investment.

The ask price is $55.50 is the price applicable to investors who wish to acquire the Fincorp stock.

The prices have been computed in such a  way that the broker will always gain, whether an investor is buying or selling his/her stake.

Conclusively, the order given to the broker to buy at market would be executed at the ask price of $55.50, not the other way round.

Hayes Corp. is a manufacturer of truck trailers. On January 1, 2021, Hayes Corp. leases ten trailers to Lester Company under a six-year non-cancelable lease agreement. The following information about the lease and the trailers is provided: 1) Annual payment of $120,175 is due on January 1, 2021 and at December 31 from 2021 to 2025. Hayes Corp. has an implicit rate of 8% (present value factor for 6 periods at 8% is 4.99271). 2) Titles to the trailers pass to Lester at the end of the lease. 3) The fair value of each trailer is $60,000. The cost of each trailer to Hayes Corp. is $54,000. Each trailer has an expected useful life of nine years. 4) Collectibility of the lease payments is probable. Instructions (a) What type of lease is this for the Lester Company and Hayes Corp? (b) Prepare a lease amortization schedule for Lester Company till 12/31/2021. (c) Prepare the journal entries for Lester Company on 1/1/2021 and 12/31/2021. Round all amounts to the nearest dollar.





trailer    600,000 debit

  lease liability        479,825 credit

 cash                        120,175 credit

--to record Jan 1st entry--

interest expense    38,386 debit

lease liability           81,789 credit

 cash                                 120,175 credit

--to record Dec 31st entry--


The lease is for more than half of the asset useful life. Also, it has a present value equal to the fair value of the trailer. Also, ownership is acquired at the end of the lease life.

To build the schedule we calculate the interest on the principal

then, we subtract that from the installment to get the principal amortization  and solve for the remaining at year-end

we repeat this procedure during the life of the lease.

Jan 1st, 2021

the journal entries will recognize the lease liability, the cash from the first payment, and the trailers received

Dec 31st, 2021

Here we must recognize the interest expense as well as the decrease in the lease liability.

The owner of an Italian restaurant has just been notified by her landlord that the monthly lease on the building in which the restaurant operates will increase by 20% at the beginning of the year. Her current prices are competitive with nearby restaurants of similar quality. However, she is now considering raising her prices by 20 percent to offset the increase in her monthly rent. Would you recommend that she raise prices?





In a competitive market, price should be a function of variable/marginal costs not fixed costs.

Miguel works for an organization that collects books from donors and redistributes the books to schools to promote literacy and good reading habits. The company is funded by a government grant. Miguel works for a(n) ________.


i think the answer is a non profit organization

On January 1, 2016, Jacob Inc. purchased a commercial truck for $48,000 and uses the straight-line depreciation method. The truck has a useful life of eight years and an estimated residual value of $8,000. On December 31, 2017, Jacob Inc. sold the truck for $43,000. What amount of gain or loss should Jacob Inc. record on December 31, 2017? A. Gain, $22,000.
B. Gain, $5,000.
C. Loss, $3,000.
D. Loss, $18,000.



The correct answer is B: gain $5000


Giving the following information:

On January 1, 2016, = commercial truck for $48,000.

straight-line depreciation method.

useful life of eight years.

residual value of $8,000.

On December 31, 2017, Jacob Inc. sold the truck for $43,000.

Depreciation expense per year= (Purchase value - residual value)/8

Depreciation expense per year= (48000-8000)/8=5000

Accumulated depreciation year 2= 5000*2= 10000

To calculate the gain or loss we need to use the following formula:

Gain/loss= price value - book value

Gain/loss= price value - (purchase price - accumulated depreciation)

Gain/loss= 43000 - (48000- 10000)= 5000 gain

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