A company wants to open a new store in one of two nearby shopping malls. In Mall A, the rent will be $250,000 per year. In Mall B, the rent will be 4%... Accounting MCQs | Accounting MCQs

A company wants to open a new store in one of two nearby shopping malls. In Mall A, the rent will be $250,000 per year. In Mall B, the rent will be 4% of gross revenues. Assuming that revenues and all other elements under consideration are the same for both malls, at what level of revenues will the company be indifferent between the two malls?

$1,000,000$4,000,000$6,250,000$12,500,000Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (C) is correct. The level of indifference is calculated by setting the equation for the first mall (a flat $250,000) equal to the equation for the second mall. Solving for that equation involves dividing $250,000 by 4%, resulting in an indifference level of revenues of $6,250,000