Mary Graham worked as a real estate agent for Piedmont Properties for 15 years. Her annual income is approximately $100,000 per year. Mary is considering establishing her own real estate agency. She expects to generate revenues during the first year of $2 Million. Salaries paid to her employees are expected to total $250,000. To begin the business, Mary must borrow$500,000 from her bank at an interest rate of 15%. Equipment will cost Mary $50,000. At the end of one year, the value of this equipment will be $30,000, even though the depreciation expense for tax pursposes is only $5,000 during the first year. a. Determine the (pre-tax) accounting profit for this venture b. Determine the (pre-tax) economic profit for this venture. c. Which of the costs for this firm are explicit and which are implicit?
Mary Graham worked as a real estate agent for Piedmont Properties for 15 years. Her annual income is approximately $100,000 per year. Mary is considering establishing her own real estate agency. She expects to generate revenues during the first year of $2 Million. Salaries paid to her employees are expected to total $250,000. To begin the business, Mary must borrow$500,000 from her bank at an interest rate of 15%. Equipment will cost Mary $50,000. At the end of one year, the value of this equipment will be $30,000, even though the depreciation expense for tax pursposes is only $5,000 during the first year. a. Determine the (pre-tax) accounting profit for this venture b. Determine the (pre-tax) economic profit for this venture. c. Which of the costs for this firm are explicit and which are implicit?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Mary Graham worked as a real estate agent for Piedmont Properties for 15 years. Her annual income is approximately $100,000 per year. Mary is considering establishing her own real estate agency. She expects to generate revenues during the first year of $2 Million. Salaries paid to her employees are expected to total $250,000. To begin the business, Mary must borrow$500,000 from her bank at an interest rate of 15%. Equipment will cost Mary $50,000. At the end of one year, the value of this equipment will be $30,000, even though the depreciation expense for tax pursposes is only $5,000 during the first year.
a. Determine the (pre-tax) accounting profit for this venture
b. Determine the (pre-tax) economic profit for this venture.
c. Which of the costs for this firm are explicit and which are implicit?
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