Assignment 1:

At the beginning of the year, an audio engineer quit his job and gave up a salary of $175,000 per year in order to start his own business, Sound Devices, Inc. The new company builds, installs, and maintains custom audio equipment for businesses that require high quality audio systems. A partial income statement for Sound Devices, Inc., is as follow:

Year 2016

Revenue from sales of product and service $970,000

Total operating cost and Expenses555,000

Income from operation415,000

Interest expenses (bank loan)45,000

Legal expenses to start business28,000

Income taxes165,000

Net income177,000

To get started, the owner of Sound Devices spent $100,000 of his personal savings to pay for some of the capital equipment used in the business. In 2016, the owner could have earned 15% return by investing is stocks of other new businesses with risk levels similar to risk level at Sound Devices.

Please valuate in the short-run and long run. Calculate and compare the business income and his opportunity cost for doing the business for the above periods and take a logical conclusion