$3.$ Exercise $8\mathrm{.}3$

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$ million. Salaries paid to her employees are expected to total $$1\mathrm{.}50$ million. Operating expenses $($e$.$g$.,$ rent, supplies, utility services$)$ are expected to total $$250,000.$ To begin the business, Mary must borrow $$300,000$ from her bank at an interest rate of $15\%.$ Equipment will cost Mary $$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.

What is the $($pre$-$tax$)$ accounting profit for this venture?

$$100,000$

$$85,000\mathrm{.}00$

$$200,000\mathrm{.}00$

$$185,000\mathrm{.}00$

What is the $($pre$-$tax$)$ economic profit for this venture?

$$185,000\mathrm{.}00$

$$85,000\mathrm{.}00$

$$200,000\mathrm{.}00$

$$100,000$