Module 1 Problems

Problem 1
Jane, a graduate from Chicago Business School, turned down a job offer at $75,000 per year to start her own business. She invested $25,000 of her savings, which has been in a bank account earning 8.5% interest per year. She has also turned her own flat, which has been rented for $1000 per month into a sub-office. Revenue in the first year of the business was $155,000 while other expenses were; Advertising : $4500 ; Rent : $15,000 ; Taxes : $5000 ; Employees salaries : 45,000 ; Supplies : 5000. Prepare two income statements, one using the Accounting approach and one using the approach of economists to determine profit.

Problem 2
The owner of a firm expects to make a profit of $ 350 for each of the two years and to be able to sell the firm at the end of the second year for $ 800. The owner of the firm believes that the appropriate discount rate for the firm is 13 %. Calculate the value of the firm.

Problem 3
The cost of attending an MBA Program for one year is $ 75,000 for tuition, $ 1200 for the room, $ 1500 for meals, and $ 500 for books and supplies. The student could also have earned $18,000 by getting a job instead of going to college and 12 % interest on expenses he or she incurs at the beginning of the year. Calculate the explicit, implicit, and the total economic costs of attending college.