Question

Assume that a national restaurant firm called BBQ builds 15 new restaurants at a cost of $1 million per restaurant. It outfits each restaurant with an additional $300,000 of equipment and furnishings. To help partially defray the cost of this expansion, BBQ issues and sells 300,000 shares of stock at $35 per share.
a. What is the amount of economic investment that has resulted from BBQ?s actions?

b. How much purely financial investment took place? .

Answer 1

Answer:

a) 19.5 million

b) $10.5 million

Explanation:

a) Since BBQ builds 15 new restaurants at a cost of $1 million per restaurant, The total cost for building restaurants = 15 × $1 million = $15 million

BBQ spends $300000 on equipment and furnishings for each restaurant. Therefore, total money spent on equipment and furnishings = $300000 × 15 = $4.5 million

The amount of Economic investments = The total cost for building restaurants + total money spent on equipment and furnishings = $15 million + $4.5 million = $19.5 million

b)  BBQ issues and sells 300,000 shares of stock at $35 per share.

Therefore, the purely financial investment = $35 per share × 300000 shares = $10.5 million