**Problem 2:**The Ragged Mountain Running Shop (RMRS) sells running shoes and apparel in Charlottesville, VA. The owners are considering opening new retail locations. After careful market analysis, they estimated the expected returns at five new potential locations. These estimates are listed in the following table, along with the amount RMRS would need to borrow in order to open each location.| Location | Exp. Return | Qty. of funds demanded ||-------------------------|-------------|------------------------|| Crozen | 6% | $100,000 || Downtown Charlottesville| 4% | $100,000 || Harrisonburg | 11% | $80,000 || Waynesboro | 2% | $60,000 || West End of Richmond | 8% | $200,000 |**Questions:**a. RMRS approaches the Virginia National Bank (VNB) hoping to borrow to expand. - Which locations will RMRS open if VNB offers a loan at an interest rate of 7%? - What locations will it open at an interest rate of 5%?b. What is the total amount of loans that RMRS takes at: - An interest rate of 7%? - An interest rate of 5%?c. Use the information in the table on the previous page to complete RMRS’s demand schedule for loanable funds, given below. Use the information from the demand schedule to draw RMRS’s demand curve for loanable funds.| Interest rate | Quantity Demanded ||---------------|--------------------|| 11% | || 8% | || 6% | || 4% | || 2% | |**Graph/Diagram Explanation:**The problem involves a demand schedule for loanable funds based on varying interest rates and expected returns. RMRS will compare the expected return percentage to the interest rate offered by the bank to determine which locations to invest in. Locations with expected returns higher than the interest rate will be chosen to achieve profitability.

a. The firm would be willing to take up the loan only when the returns from the economy are higher…

2. The Ragged Mountain Running Shop (RMRS) sells running shoes and apparel in Charlottesville, VA. The owners of RMRS are considering the possibility of opening new retail locations. After careful market analysis, they estimate the expected returns at five new potential locations. These estimates are listed in the following table, along with the amount RMRS would need to borrow in order to open each location. Qty. of funds demanded $100,000 $100,000 $80,000 $60,000 $200,000 Location Exp. Return Crozen 6% Downtown Charlottesville 4% Harrisonburg Waynesboro 11% 2% West End of Richmond 8% RMRS approaches the Virginia National Bank (VNB) with hopes of borrowing to expand into other locations. Which locations will RMRS open if VNB offers them a loan at an interest rate of 7%? What locations will it open if VNB offers them a loan at an interest a. rate of 5%? b. What is the total amount of loans that RMRS takes at an hterest rate of 7%? At an interest rate of 5%? Use the information in the table on the previous page to complete the demand schedule for RMRS, which is given below. Use the information from the demand schedule to draw RMRS' demand curve for loanable funds. C. Interest rate Quantity Demanded 11% 8% 6% 4% 2%

2. The Ragged Mountain Running Shop (RMRS) sells running shoes and apparel in Charlottesville, VA. The owners of RMRS are considering the possibility of opening new retail locations. After careful market analysis, they estimate the expected returns at five new potential locations. These estimates are listed in the following table, along with the amount RMRS would need to borrow in order to open each location. Qty. of funds demanded $100,000 $100,000 $80,000 $60,000 $200,000 Location Exp. Return Crozen 6% Downtown Charlottesville 4% Harrisonburg Waynesboro 11% 2% West End of Richmond 8% RMRS approaches the Virginia National Bank (VNB) with hopes of borrowing to expand into other locations. Which locations will RMRS open if VNB offers them a loan at an interest rate of 7%? What locations will it open if VNB offers them a loan at an interest a. rate of 5%? b. What is the total amount of loans that RMRS takes at an hterest rate of 7%? At an interest rate of 5%? Use the information in the table on the previous page to complete the demand schedule for RMRS, which is given below. Use the information from the demand schedule to draw RMRS' demand curve for loanable funds. C. Interest rate Quantity Demanded 11% 8% 6% 4% 2%

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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