Prof X is a university professor who is thinking about opening and running her own consulting...
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Prof X is a university professor who is thinking about opening and running her own consulting firm. If she does so, she'll do it full-time, and resign from the university. She estimates the following figures for her consulting firm: annual revenues = $210,000; an assistant hired for $60,000 a year; office supplies & utilities at $8,000 a year; she'll have to take out a bank loan of $200,000 (@8% interest per year) for office office equipment & furniture; she'll withdraw $100,000 from her savings in her brokerage account (earning about 7% per year) also for office equipment & furniture; she'll use, as her office, a space at the mall that she now owns, and is currently rented out to someone else for $10,000/year. Her salary at the university is $90,000 per year. And assume that Prof X values her "worry-free weekends" as a prof to be worth $30,000. Prof X is your friend/relative who, upon knowing that you have taken some econ course, is now asking for your advice or help in making her decision/choice: If she goes ahead with her consulting firm, how much are her accounting profits? How much are her economic profits? Based on the answers to these two previous computations, should she go out and be her own boss, or should she stay at the university? Analyze this problem step by step. Critically assess Prof X's choice, by answering the following questions: 1A) In the consulting firm, itemize (with labels, and computations where needed) her explicit costs and her implicit costs. Explicit Costs: A) B) c) D) Implicit Costs: A) B) c) D) 1B) Next, estimate her accounting profits, and her economic profits. Accounting Profits = Economic Profits = 1C) Finally, interpret what the computed numbers mean - and how you would explain this whole analysis to her. Do this by answering the following guide questions: a) To an accountant, how much annual profits would she earn from her consulting firm? b) If she stayed at the university, how much is her total income (both financial and psychic income, in $ terms)? c) Focusing on the $ values that you have computed, would you advise Prof X to become her own boss? Why or why not (cite $ values in your explanation)? 1D) If Prof X told you that she is actually just as eager to be a prof as she is to be a consultant; that is, she does not require any extra income to become her own boss (vs being a prof), or that her "worry-free weekends" are not worth anything. Should she go into consulting, or should she stay? Explain you answer with $ numbers. Prof X is a university professor who is thinking about opening and running her own consulting firm. If she does so, she'll do it full-time, and resign from the university. She estimates the following figures for her consulting firm: annual revenues = $210,000; an assistant hired for $60,000 a year; office supplies & utilities at $8,000 a year; she'll have to take out a bank loan of $200,000 (@8% interest per year) for office office equipment & furniture; she'll withdraw $100,000 from her savings in her brokerage account (earning about 7% per year) also for office equipment & furniture; she'll use, as her office, a space at the mall that she now owns, and is currently rented out to someone else for $10,000/year. Her salary at the university is $90,000 per year. And assume that Prof X values her "worry-free weekends" as a prof to be worth $30,000. Prof X is your friend/relative who, upon knowing that you have taken some econ course, is now asking for your advice or help in making her decision/choice: If she goes ahead with her consulting firm, how much are her accounting profits? How much are her economic profits? Based on the answers to these two previous computations, should she go out and be her own boss, or should she stay at the university? Analyze this problem step by step. Critically assess Prof X's choice, by answering the following questions: 1A) In the consulting firm, itemize (with labels, and computations where needed) her explicit costs and her implicit costs. Explicit Costs: A) B) c) D) Implicit Costs: A) B) c) D) 1B) Next, estimate her accounting profits, and her economic profits. Accounting Profits = Economic Profits = 1C) Finally, interpret what the computed numbers mean - and how you would explain this whole analysis to her. Do this by answering the following guide questions: a) To an accountant, how much annual profits would she earn from her consulting firm? b) If she stayed at the university, how much is her total income (both financial and psychic income, in $ terms)? c) Focusing on the $ values that you have computed, would you advise Prof X to become her own boss? Why or why not (cite $ values in your explanation)? 1D) If Prof X told you that she is actually just as eager to be a prof as she is to be a consultant; that is, she does not require any extra income to become her own boss (vs being a prof), or that her "worry-free weekends" are not worth anything. Should she go into consulting, or should she stay? Explain you answer with $ numbers.
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Related Book For
Introduction To Federal Income Taxation In Canada
ISBN: 9781554965021
33rd Edition
Authors: Robert E. Beam, Stanley N. Laiken, James J. Barnett
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