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27 August, 05:26

1. Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance (which paid 8 percent interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her costs for her.

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  1. 27 August, 07:06
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    To her dad who is an accountant, her cost will be $31,000, but to her mum the economist, her cost will be $47,600

    Explanation:

    Megan used to earn = $15,000

    Withdrawal made = $20,000

    This withdrawal would have earned her $1,600 for one year at 8% interest

    Expenses recorded = $25,000 for ingredient

    Rent = $500 * 12 = $6000 for 1 year

    To her dad the accountant, what is recorded as cost or spent is what counts as cost, hence to the accountant;

    Accountant (Dad) cost = Cost of ingredient + Cost of rent

    = $25,000 + $6,000 = $31,000

    To her mum the economist, she put into consideration, the cost of the forgone alternative ($15,000)

    She also factors what she would have gain if she did not withdraw the money (the 8% interest) = $1,600

    Thus the Economist (Mum) cost = $25,000 + $6,000 + $15,000 + $1,600

    = $47,600
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