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Mary Graham 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 million. Salaries paid to her employees are expected to total $1.5 million. Operating expenses 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.

A) Determine the pre-tax accounting profit for this venture.
B) Determine the pre-tax economic profit for this venture.
C) Which of the costs for this firm are explicit and which are implied?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M939164

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