Answer to Question #142324 in Economics for Mr. Dinesh Pal Singh

Question

5. A recent engineering graduate turns down a job offer of $30,000 per year to start his own business. He will invest $50,000 of his own money that has been in a bank account earning 7 percent in interest per year. He also plans to use a building he owns that has been rented to another business for $1,500 per month. Revenue during the first year was $107,000, while expenses were:
Advertising $ 5,000
Rent 10,000
Taxes 5,000
Employees’ salaries 40,000
Supplies 5,000
Prepare two income statements, one using the traditional accounting approach and one using the opportunity cost approach to determine profit.

Answer 1

1.

$50000\times1.07+107000-(5000+10000+5000+40000+5000)=95500$

2.

$$95500-30000=65500$$