Question
Robert James worked as a real estate agent for Simms Realty for 12 years. His annual income is approximately $120,000 per year. Robert is considering
Robert James worked as a real estate agent for Simms Realty for 12 years. His annual income is approximately $120,000 per year. Robert is considering establishing his own real estate agency. He expects to generate revenues during the first year of $3 million. Salaries paid to her employees are expected to total $2 million. Operating expenses(i.e., rent, supplies, utility services) are expected to total $300,000. To begin the business, Robert must borrow $550,00 from the bank at an interest rate of 15 percent. Equipment will cost Robert $75,000. At the end of one year, the value of this equipment $40,000, even though the depreciation expense for tax purposes is only $8,000 during the first year.
a. Determine the (pre-tax) accounting profit for this venture.
b. Determine the (pre-tax) economic profit for this venture.
c. Which of the cost for this firm are explicit and which are implicit?
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