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1 September, 05:48

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?

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  1. 1 September, 06:13
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    The correct answer is $1,000.

    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
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