Question
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
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 $7 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 $40,000. 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?
$1,550,000
$1,560,000
$1,400,000.00
$1,410,000.00
What is Bowen's economic profit?
$1,550,000
$1,400,000.00
$1,560,000
$1,410,000.00
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