Cobbgold Swim Team provides swimming instruction to main children and has 2014 revenues of $500,000 with annual operating expenses, including salaries, utilities, and the cost of chemicals totaling $200,000. Leonard Edwards, the owner, and the head coach has invested his life savings of $300,000 into the construction of an Olympic-sized swimming pool and building with lockers, showers, etc. Due to sewer problems and a defective heating mechanism, the swimming pool and building is worth $260,000 at the end of 2014 Recently passed legislation in Cobb County includes funding for a new aquatic center within 3 miles of the CobbGold pool. Competition for swimmers is expected to be fierce and Edwards anticipates that there will be a 20% reduction in the number of swimmers in 2015. 

The other day, Edwards received a call from the Cobb County Department of Parks and Recreation offering him the position of Head Coach beginning on January 1, 2015, at a salary of $100,000. However, most (non-owner) head coaches earned roughly $60,000 per year in 2014, and there is a shortage of qualified head coaches. Assumptions for your analysis: Edwards’ next best investment would earn him a 10% rate of return The value of Edwards’ facility will remain the same in 2015 as in 2014 even though there will be a decline in revenues in 2015 due to the rising property values in Cobb County. Edwards cannot compete with himself: he cannot own the CobbGold pool and hire a new head coach to run CobbGold in 2015 while working as a head coach for the Cobb County facility 3 miles away.

a. Calculate economic profits of the CobbGold pool in 2014. Economic profits for 2014 are_______________.

b. Calculate economic profits of the Cobbgold pool in 2015. You should assume that operating expenses and rate of return will not change from 2014 to 2015. Economic profits for 2015 are_______________.

c. Should Edwards accept the new position or continue to own and operate the CobbGold pool? (Explain your answer in a sentence or two).

Answer rating: 100% (QA)

a Ecconomic profit for the year 2014 Revenue Operating expenses Impa... View the full answer