- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 1. The Firm and Market Structures
- Subject 2. Economic Profit vs. Accounting Profit
CFA Practice Question
The cost of funds supplied by the owner of a proprietorship is a(n) ______.
A. explicit cost
B. implicit cost
C. sunk cost
Explanation: Implicit costs are those costs associated with the use of resources owned by the firm. For these, there are no explicit monetary payments and thus they represent implicit costs. Examples of such costs include the use of a spare warehouse or the services provided by a proprietor for his own business.
User Contributed Comments 7
| User | Comment |
|---|---|
| SalmaM | It is a past cost, so why is the answer not sunk cost? |
| nike | not sunk yet, as the owner can take the funds back. |
| lazio | u mean the cost would be sunk if the funds had been used in acquiring something like a production machine? |
| Lamkerst | The question is not about funds (can be sunk if not recoverable), but about the COST of these funds. It is the interest foregone. |
| cong | good one, lamkerst |
| cebus | Doesn't the cost of funds supplied by the owner imply that the owner borrowed money and is or will pay interest on those funds?....maybe I'm thinking about this wrong. |
| cebus | Adding the my previous comment, it seems like the answer could be A or B. It's explicit if he's paying interest on the funds, and implicit if there are no coupon payments but he has to pay back a higher amount in the future. |