GT has two options. The first option is to start an event-planner company and be
ID: 1220347 • Letter: G
Question
GT has two options.
The first option is to start an event-planner company and be self-employed. using a business-plan; he computed the following annualestimates
The total revenue is = $ 250k
Made purchase is = $ 145k
Misc utilittty costs is = $ 37k
GT will do everything by himselfe; he doesn’t intend to hire any staff members in the first year of business; he will do everything by himself and the blding has been paid-off.
The second option is to work for an established event planning business; his annual saluary would be $forty four thousand a year and he ccould rent the blding for $twenty four thousand a year.
*using concepts from the accounting and economic profit – compare and contrassst, which would be the most profitable option – explain.
Explanation / Answer
Accounting profit = Revenue - Explicit costs = $250,000 - $145,000 - $37,000 = $68,000
Economic profit = Accounting profit - Implicit costs = Accounting profit - Salary foregone - Rent foregone
= $68,000 - $44,000 - $24,000
= 0
Since accounting profit is positive and economic profit is zero (breakeven), GT is advised to continue with being self-employed, since there is no economic loss.
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