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2. Exercise 8.2 Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current market value of $8 million. Bowen owes his local bank $5 million. Last year Bowen sold $7 million worth of cotton. His variable operating costs were $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 $50,000. 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? $1,560,000 $1,190,000.00 $1,200,000.00 $1,550,000 What is Bowen's economic profit? $1,190,000.00 $1,200,000.00 $1,550,000 $1,560,000

2. Exercise 8.2 Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current market value of $8 million. Bowen owes his local bank $5 million. Last year Bowen sold $7 million worth of cotton. His variable operating costs were $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 $50,000. 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? $1,560,000 $1,190,000.00 $1,200,000.00 $1,550,000 What is Bowen's economic profit? $1,190,000.00 $1,200,000.00 $1,550,000 $1,560,000

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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2. Exercise 8.2 Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current market value of $8 million. Bowen owes his local bank $5 million. Last year Bowen sold $7 million worth of cotton. His variable operating costs were $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 $50,000. 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? $1,560,000 $1,190,000.00 $1,200,000.00 $1,550,000 What is Bowen's economic profit? $1,190,000.00 $1,200,000.00 $1,550,000 $1,560,000
Transcribed Image Text:2. Exercise 8.2 Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current market value of $8 million. Bowen owes his local bank $5 million. Last year Bowen sold $7 million worth of cotton. His variable operating costs were $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 $50,000. 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? $1,560,000 $1,190,000.00 $1,200,000.00 $1,550,000 What is Bowen's economic profit? $1,190,000.00 $1,200,000.00 $1,550,000 $1,560,000
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