Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 8, Problem 3E
a)
To determine
Accounting profit for the venture.
b)
To determine
Economic profit of the venture
c)
To determine
Cost which are explicit and implicit.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
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 $1.5 million. Operating expenses (i.e., rent supplies, utility services) 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 purposes is only $5,000 during the year.
a. Determine the (pre-tax) accounting profit for this venture.
b. Dtermine the (pre-tax) economic profit for this venture.
c. Which of the costs for this firm are explicit and which are implicit?
Samantha has been working for a law firm and earning an annual salary of $90,000. She decides to open her own practice. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and $35,000 salary for a secretary. Samantha will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of 3%. Assuming that there are no additional expenses, Samantha’s annual implicit costs will equal __________ dollars.
Samantha has been working for a law firm and earning an annual salary of $80,000. She decides to open
her own practice. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental,
$1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Samantha will
cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning
annual interest of $500.
Chapter 8 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Knowledge Booster
Similar questions
- Samantha has been working for a law firm and earning an annual salary of $80,000. She decides to open her own practice. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Samantha will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500. 1.Refer to above Scenario. Samantha's annual explicit costs will equal $55,200. $75,200. $80,500. $165,700. a. b. C. d. Answer: 2. Refer to above Scenario. Samantha's annual explicit costs will equal $55,200. $75,200. $80,500. $165,700. a. b. C. d. Answer: 3. Refer to above Scenario. Samantha's annual implicit costs will equal a. $55,200. $75,200. S80,500. $165.700. b. C. d. Answer: 4. Refer to above Scenario. Samantha's annual economic costs will equal a. $55,200. b. $75,200. $80,500. $135,700. c. d. Answer:arrow_forwardMary Graham has 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 $1.50 million. Operating expenses (e.g., rent, supplies, utility services) are expected to total $250,000. To begin the business, Mary must borrow $300,000 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 purposes is only $5,000 during the first year. What is the (pre-tax) accounting profit for this venture? $85,000.00 $185,000.00 $100,000 $200,000.00 What is the (pre-tax) economic profit for this venture? $100,000 $85,000.00 $200,000.00 $185,000.00arrow_forwardTanim quits his engineering job, where he was earning a salary of $70,000 per year, to start his own computer software business. He owns a building and was renting out for $20,000 per year. Tanim hires a new building for his company and pays a non-refundable advance fee of $10,000 today. Later on, after a few days, he decides to go back to his own building and for that he cancels his contract with his tenant. Find the sunk cost associated with Tanim's computer software business. There is no sunk cost It is $20,000 It is $10,000 It is $30,000 Which one is correct?arrow_forward
- Mary Graham has 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 $1.50 million. Operating expenses (e.g., rent, supplies, utility services) are expected to total $250,000. To begin the business, Mary must borrow $300,000 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 purposes is only $5,000 during the first year. What is the (pre-tax) accounting profit for this venture? A. $185,000.00 B. $85,000.00 C. $100,000 D. $200,000.00 What is the (pre-tax) economic profit for this venture? A. $185,000.00 B. $85,000.00 C. $200,000.00 D. $100,000arrow_forwardSara has decided to quit her corporate job and live her dream by opening up her own food truck selling her "famous" tacos. She expects to earn $90,000 per year once she gets a loyal following. To run her business, she will need to get a food truck, equipment, and a license. The food truck will cost her $800 per month to lease, equipment rentals are $150 per month and an annual license is $300. Sara will also be taking a large pay cut to follow her dream. Her corporate job's annual salary is $100,000 annually. What is Sara's economic profit?arrow_forwardYogajothi is thinking of investing in a rental house. The total cost to purchase the house, including legal fees and taxes, is $240,000. All but $30,000 of this amount will be mortgaged. He will pay $1700 per month in mortgage payments. At the end of two years, he will sell the house and at that time expects to clear $50,000 after paying off the remaining mortgage principal (in other words, he will pay off all his debts for the house and still have $50,000 left). Rents will earn him $2500 per month for the first year and $2900 per month for the second year. The house is in fairly good condition now, so he doesn't expect to have any maintenance costs for the first six months. For the seventh month, Yogajothi has budgeted $500. This figure will be increased by $50 per month thereafter (e.g., the expected month 7 expense will be $500, month 8, $550, month 9, $600, etc.). If interest is 6 percent compounded monthly, what is the present worth of this investment? Given that Yogajothi's…arrow_forward
- Yogajothi is thinking of investing in a rental house. The total cost to purchase the house, including legal fees and taxes, is $230,000. All but $20,000 of this amount will be mortgaged. He will pay $1500 per month in mortgage payments. At the end of two years, he will sell the house and at that time expects to clear $40,000 after paying off the remaining mortgage principal (in other words, he will pay off all his debts for the house and still have $40,000 left). Rents will eam him $2500 per month for the first year and $2800 per month for the second year. The house is in fairly good condition now, so he doesn't expect to have any maintenance costs for the first six months. For the seventh month, Yogajothi has budgeted $300. This figure will be increased by $30 per month thereafter (e.g., the expected month 7 expense will be $300, month 8, $330, month 9, $360, etc.). If interest is 6 percent compounded monthly, what is the present worth of this investment? Given that Yogajothi's…arrow_forwardYogajothi is thinking of investing in a rental house. The total cost to purchase the house, including legal fees and taxes, is $230,000. All but $40,000 of this amount will be mortgaged. He will pay $1500 per month in mortgage payments. At the end of two years, he will sell the house and at that time expects to clear $50,000 after paying off the remaining mortgage principal (in other words, he will pay off all his debts for the house and still have $50,000 left). Rents will earn him $2000 per month for the first year and $2400 per month for the second year. The house is in fairly good condition now, so he doesn't expect to have any maintenance costs for the first six months. For the seventh month, Yogajothi has budgeted $300. This figure will be increased by $50 per month thereafter (e.g., the expected month 7 expense will be $300, month 8, $350, month 9, $400, etc.). If interest is 6 percent compounded monthly, what is the present worth of this investment? Given that Yogajothi's…arrow_forwardRodriguez operates a variety store that provides an annual revenue of $550,000. Each year, he pays $25,000 in rent for the store, $20,000 in business taxes, and $400,000 on products to sell. He estimates he could put the $100,000 he has invested in the store into his friend's restaurant business instead and earn an annual 20% profit on his funds. He also estimates that he and his family could earn a total annual wage of $90,000 if they worked somewhere other than the store. Include a minus sign (-) in front of any negative values entered as a solution below. a. The total explicit costs of running the store are $ The total implicit costs of running the store are $ b. The accounting profit of the kariety store is $ The economic profit of the variety store is $arrow_forward
- Raphael lives in San Diego and runs a business that sells pianos. In an average year, he receives $704,000 from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $404,000; he also pays wages and utility bills totaling $286,000. He owns his showroom; if he chooses to rent it out, he will receive $3,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Raphael does not operate this piano business, he can work as an accountant, receive an annual salary of $20,000 with no additional monetary costs, and rent out his showroom at the $3,000 per year rate. No other costs are incurred in running this piano business. Identify each of Raphael's costs in the following table as either an implicit cost or an explicit cost of selling pianos. Implicit Cost Explicit Cost The wholesale cost for the pianos that Raphael pays the manufacturer The rental income Raphael could receive if he chose to rent out his showroom…arrow_forwardRodriguez operates a variety store that provides an annual revenue of $500,000. Each year, he pays $30,000 in rent for the store, $20,000 in business taxes, and $350,000 on products to sell. He estimates he could put the $80,000 he has invested in the store into his friend's restaurant business instead and earn an annual 20% profit on his funds. He also estimates that he and his family could earn a total annual wage of $90,000 if they worked somewhere other than the store. Include a minus sign (-) in front of any negative values entered as a solution below. a. The total explicit costs of running the store are $ The total implicit costs of running the store are $ b. The accounting profit of the variety store is $ ces The economic profit of the variety store is $ c. Rodriguez (Click to select) v consider closing down this business because he is making a (Click to select)arrow_forwardJoseph migrated to Canada from Ghana 5 years ago. He currentlyworks in sales but is considering quitting work for two years to earn an MBA degree. His current job pays $40,000 per year (after taxes), but he could earn $55,000 per year (after taxes) if he had an MBA. Tuition is $10,000 per year, and the cost of an apartment near campus is equal to the $10,000 he is currently paying. His discount rate is 6 percent per year. He just turned 48 and plans to retire when he turns 60, whether or not he earns his MBA degree. Based on this information, should he go for an MBA degree? Explain carefully with appropriate calculations. Using time value of money to solve.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning