Question

Although Goldman Sachs paid Heather $110,000.00 per year, she was not satisfied with her job. She had loved going white-water rafting and skiing with her family in Utah since she was a little girl. So last year, she decided to open her own business: Family Adventures. During the summer, she takes families on different white-water trips, and in the winter, she leads clients on skiing trips. To start her business, Heather borrowed $100,000 from a bank and used $100,000.00 of her savings. Her savings earned 10% interest. At the end of the year, she wanted to know whether her new business venture was worthwhile. The table below lists her total revenue and itemized costs for Family Adventures. Item Total revenue Employee wages Rent on her business office Payments on bank loan Utility and gas expenses Annual Dollar Value $300,000.00 $140,000.00 $25,000.00 $10,000.00 $5,000.00

Answer 1

Accounting profit = TR-Explicit costs

= 300000-(140000+25000+10000+5000)

= 120000

Economic profit = Accounting profit - Implicit costs

= 120000-(110000+10% of 100000)

= 0