Question 2 (a) Molly was the Accountant of an International firm with a monthly income of $30,000. Due to the closure of the Hong Kong branch, Molly was dismissed last year and is not able to get a job with a comparable income. However, if she would accept, she could join a local firm with a monthly salary of $20,000. Alternatively, she may start and run her own consultancy firm to receive a monthly revenue of $40,000. If her business is not profitable in the first year of operations, she would work for a local firm. To set up the new consultancy business, she has to withdraw her $100,000 saving at bank as capital, which earns an annual interest at the rate of 2%. She has to borrow $200,000 from the bank at an annual interest rate of 3% too. In her budget, the monthly rent of the office is $15,000 and the other expenses is estimated to be $8,000 per month. She will spend $80,000 to purchase office furniture and equipment with the following resale value estimation: Period Estimated resale value After 1 year $50,000 After 2 years $20,000 After 3 years $8,000 (i) Calculate the annual accounting profit of Molly's consultancy firm in her first year of operation (5 marks) (i) Calculate the annual economic profit of Molly's consultancy firm in her first year of operation (4 marks) (iii) Should Molly make her new business development decision based on accounting profit or economic profit? Why? Should Molly start her consultancy business? Explain. (5 marks) (b) Blue Sky is the only supplier of high pressure breathing gas for scuba diving in the country. It used to earn a good profit. However, with the outbreak of the coronavirus disease, all scuba diving activities suspense and Blue Sky suffers a loss. With the aid of ONE diagram, show how the market situation of Blue Sky is changed. No explanation is required. (6 marks) - END OF PAPER