Question
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
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 $2,000,000. Salaries paid to her employees are expected to total $1,500,000. Operating expenses (i.e., rent, supplies, and 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 percent. 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.
- Determine the (pretax) accounting profit for this venture.
- Determine the (pretax) economic profit for this venture.
- Which of the costs for this firm are explicit and which are implicit?
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