CFA Practice Question

There are 539 practice questions for this study session.

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.
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