A) Rick is thinking about quitting his current job, which pays a salary of $54,000 per year, to own and operate his own business. If he starts the business, he expects to spend $230,000 to purchase physical capital. This amount of money would come from two sources: $110,000 from a bank loan at an interest rate of 7% per year and $120,000 from Rick's savings, which are currently invested in stocks that are equally risky as his intended business and earning 11% per year. The physical capital is expected to have useful life of 10 years and a scrap value of $25,000. Rick expects to spend $130,000 per year on assistants and to pay himself a salary of $23,000 per year while operating his business. His business is expected to earn total revenues of $260,000. After learning that Rick might quit, his employer offers him a salary of $62,000 per year to convince him to stay at his current job. The expected annual accounting profit of Rick's intended business is $__________ B) Rick is thinking about quitting his current job, which pays a salary of $62,000 per year, to own and operate his own business. If he starts the business, he expects to spend $260,000 to purchase physical capital. This amount of money would come from two sources: $150,000 from a bank loan at an interest rate of 5% per year and $110,000 from Rick's savings, which are currently invested in stocks that are equally risky as his intended business and earning 12% per year. The physical capital is expected to have useful life of 10 years and a scrap value of $26,000. Rick expects to spend $120,000 per year on assistants and to pay himself a salary of $25,000 per year while operating his business. His business is expected to earn total revenues of $250,000. After learning that Rick might quit, his employer offers him a salary of $68,000 per year to convince him to stay at his current job. The expected annual explicit cost of Rick's intended business is $_______
A)
Rick is thinking about quitting his current job, which pays a salary of $54,000 per year, to own and operate his own business. If he starts the business, he expects to spend $230,000 to purchase physical capital. This amount of money would come from two sources: $110,000 from a bank loan at an interest rate of 7% per year and $120,000 from Rick's savings, which are currently invested in stocks that are equally risky as his intended business and earning 11% per year. The physical capital is expected to have useful life of 10 years and a scrap value of $25,000. Rick expects to spend $130,000 per year on assistants and to pay himself a salary of $23,000 per year while operating his business. His business is expected to earn total revenues of $260,000. After learning that Rick might quit, his employer offers him a salary of $62,000 per year to convince him to stay at his current job.
The expected annual accounting profit of Rick's intended business is $__________
B) Rick is thinking about quitting his current job, which pays a salary of $62,000 per year, to own and operate his own business. If he starts the business, he expects to spend $260,000 to purchase physical capital. This amount of money would come from two sources: $150,000 from a bank loan at an interest rate of 5% per year and $110,000 from Rick's savings, which are currently invested in stocks that are equally risky as his intended business and earning 12% per year. The physical capital is expected to have useful life of 10 years and a scrap value of $26,000. Rick expects to spend $120,000 per year on assistants and to pay himself a salary of $25,000 per year while operating his business. His business is expected to earn total revenues of $250,000. After learning that Rick might quit, his employer offers him a salary of $68,000 per year to convince him to stay at his current job.
The expected annual explicit cost of Rick's intended business is $_______
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