Question
At the beginning of the year, you quit your job and gave up a salary of P1, 175, 000 per year in order to start
At the beginning of the year, you quit your job and gave up a salary of P1, 175, 000 per year in order to start your own business. Your new company builds, installs, and maintains custom audio equipment for businesses that require high-quality audio systems. For your first year of operations, a partial income statement is shown below:
Revenues--------------------------------------------970,000
Cost of products and services sold----------------355,000
Selling expenses-------------------------------------155,000
Administrative expenses-----------------------------45,000
Interest expense--------------------------------------60,000
Legal expenses----------------------------------------88,000
Tax payments (including corporate income tax)---90,000
To get started, you spent P1,000,000 of your personal savings to pay for some of the capital equipment used in the business. During your first year of operation, you could have earned a 15% return by investing in stocks of other new businesses with risk levels similar to your Company.
1. What are the total explicit, total implicit, and total economic costs for the year?
2. What is accounting profit?
3. What is economic profit?
4. Given your answer in #3, evaluate your decision to leave your job to start your company.
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