You are given the following information for the Norton Company, located in Vermont.

1. Total Revenue - 26,000,000
2. Total Non-Capital Costs - 15,600,000
3. Capital equipment purchase price and original market value - 12,000,000
4. Equipment salvage value, as percent of purchase price - 4%
5. Depreciable life of the capital equipment, years - 18
6. Annual return on capital invested in a similarly risky investment - 9%

1. Calculate the annual accounting profit. In making this calculation, assuming that the tax laws require accountants to use a 10-year straight-line depreciation of the original purchase price net of the salvage value (e.g., a $100,000 piece of equipment with a salvage value of $10,000 would have annual depreciation of ($100,000 - $10,000)/10 = $9000). (Note: you will be using 10 years for the depreciation for the calculation of accounting profits regardless of what you are given above for the actual depreciable life of the equipment. For the calculation of economic profits, use the actual depreciable life given above.)

2. Calculate the economic profit using the average annual opportunity cost of the capital. See ML203's third example for guidance. (You will be using this opportunity cost instead of the depreciation described in (1). This calculation will use the depreciable life of the capital equipment given on line #5.)