Ahmad worked as a travel agent for Dallas Travel for 20 years. His annual income is $100,000 per year. Ahmad is thinking about starting his own travel agency. He expects to generate revenues during the first year of $2 million. Salaries paid to his 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 John must borrow $500,000 from his bank at an interest rate of 15 percent. Equipment will cost John $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.

a. (5 pts) Determine the (pretax) accounting profit for this venture.

b. (5 pts) Determine the (pretax) economic profit for this venture.

c. (2.5 pts) Which of the costs for this firm are explicit and which are implicit?