Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

4.2 Dr. Sze starts his own dental practice after quitting his $180,000/per year job at The ABC Dental Clinic. His revenues in the coming

image text in transcribed

4.2 Dr. Sze starts his own dental practice after quitting his $180,000/per year job at The ABC Dental Clinic. His revenues in the coming year are $600,000. He paid $90,000 in rent for the dental office, $60,000 for his office manager's salary, $24,000 for the dental hygienist, $150,000 for insurance, and $6,000 for other miscellaneous costs. Dr. Sze also needs to buy an equipment which costs him $300,000. In the first year, the value of the equipment will decrease by 25%, which is also the accounting rule used for the depreciation of this machine. To finance the initial investment and operating costs, Dr. Sze has to use his saving of $200,000, from which he could earn an interest of 1 percent in the coming year. He also has to borrow $400,000 at 2.5 percent from a bank in the coming year. [Assume that he can recover these amounts whenever he decides to terminate this business.] Considering the risk involved, he believes that he can earn an economic profit of $20,000 from an alternative investment similar to this if starting his own dental practice is impossible. a) What are the explicit and implicit costs of Dr. Sze's dental practice in the coming year? What are the accounting profit and economic profit of Dr. Sze's dental practice in the coming year? b)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial and Managerial Accounting

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

2nd edition

978-1119036357, 1119036356, 1118338413, 1118334264, 978-1118338414, 978-1118334263

More Books

Students also viewed these Accounting questions

Question

Repeat Problem 9110 using argon as the working fluid.

Answered: 1 week ago