Answer to Question #152569 in Economics for Nadia

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 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.
i. Determine the (pretax) accounting profit for this venture.
ii. Determine the (pretax) economic profit for this venture.
iii. Which of the costs for this firm are explicit and which are implicit?

Answer 1

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