Question

Assume that a national restaurant firm called BBQ builds 10 new restaurants at a cost of $1 million per restaurant. It outfits each restaurant with an additional $200,000 of equipment and furnishings. To help partially defray the cost of this expansion, BBQ issues and sells 200,000 shares of stock at $30 per share. What is the amount of economic investment that has resulted from BBQ’s actions? How much purely financial investment took place?

Answer 1

Answer:

12,000,000; $6,000,000

Explanation:

the amount of economic investment from BBQ’s actions

BBQ builds 10 new restaurants at $1 million per restaurant

= $1 million × 10

= $10 million

equipment and furnishings = $200,000 for each restaurant

Total = $200,000 × 10 restaurants

$2 million

Total economic investment from BBQ’s actions = $10 million + $2 million

= $12 million

B. How much purely financial investment took place?

BBQ issues and sells 200,000 shares of stock at $30 per share

But the total

= 30% × $2 million

= $600000 for each restaurant

Total for the 10 restaurants will be

$600000 × 10

= $6,000,000