A person managing a dry- cleaning store for $ 30,000 per year decides to open a new one. The revenues of the store during the first year of operation are $ 100,000 and the expenses are $ 10,000 for supplies, $ 35,000 for salaries, $ 8,000 for rent, and $ 2,000 for utilities. The person also used $5,000 for interest on a bank loan. Assume that income and business taxes are zero and the repayment of the principal of the loan does not start before three years (suppose r=10%). Calculate (a) the explicit cost (b) the implicit costs (c) the business profit, (d) the Economic profit (e) should he open the dry-cleaning store or not? Explain your answer.
A person managing a dry- cleaning store for $ 30,000 per year decides to open a new one. The revenues of the store during the first year of operation are $ 100,000 and the expenses are $ 10,000 for supplies, $ 35,000 for salaries, $ 8,000 for rent, and $ 2,000 for utilities. The person also used $5,000 for interest on a bank loan. Assume that income and business taxes are zero and the repayment of the principal of the loan does not start before three years (suppose r=10%). Calculate (a) the explicit cost (b) the implicit costs (c) the business profit, (d) the Economic profit (e) should he open the dry-cleaning store or not? Explain your answer.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
QUESTION ONE
- A person managing a dry- cleaning store for $ 30,000 per year decides to open a new one. The revenues of the store during the first year of operation are $ 100,000 and the expenses are $ 10,000 for supplies, $ 35,000 for salaries, $ 8,000 for rent, and $ 2,000 for utilities. The person also used $5,000 for interest on a bank loan. Assume that income and business taxes are zero and the repayment of the principal of the loan does not start before three years (suppose r=10%).
- Calculate (a) the explicit cost (b) the implicit costs (c) the business profit, (d) the Economic profit (e) should he open the dry-cleaning store or not? Explain your answer.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education