Sammy is a psychologist and his current salary is $400,000 a year. He is planning to...

 

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Sammy is a psychologist and his current salary is $400,000 a year. He is planning to quit his job and start his own clinic. He expects the clinic could earn an annual revenue of $960,000. He plans to use his own property to run the clinic. Originally, he can receive $14,000 monthly as rental income. He needs a starting capital to finance his business. He could withdraw $100,000 from his bank account, which provides him 3% interest annually. $300,000 will be borrowed from a bank at an annual interest rate of 5%. He needs to buy one set of office equipment. He has to choose to purchase Set A or Set B. Resale value after one year $12,000 $5,000 Set A B Here is the list of his budgeted operating expenses: Item Salary of nurses Cost $20,000 $18,000 Marketing expenses Sundry expenses Annual Amount $300,000 $100,000 $15,000 (a) Which set of office equipment would you suggest Sammy to purchase? Explain with relevant data and working. (5 marks) (b) Based on the above data and your answer of part (a), calculate the annual explicit cost, annual implicit cost and annual economic profit of Sammy's clinic in his first year of operations. List all items and show your working. (10 marks) (c) Base on your answer of part (b), would you recommend Sammy to operate the clinic? Should he resign from his current position? Why? (3 marks) Sammy is a psychologist and his current salary is $400,000 a year. He is planning to quit his job and start his own clinic. He expects the clinic could earn an annual revenue of $960,000. He plans to use his own property to run the clinic. Originally, he can receive $14,000 monthly as rental income. He needs a starting capital to finance his business. He could withdraw $100,000 from his bank account, which provides him 3% interest annually. $300,000 will be borrowed from a bank at an annual interest rate of 5%. He needs to buy one set of office equipment. He has to choose to purchase Set A or Set B. Resale value after one year $12,000 $5,000 Set A B Here is the list of his budgeted operating expenses: Item Salary of nurses Cost $20,000 $18,000 Marketing expenses Sundry expenses Annual Amount $300,000 $100,000 $15,000 (a) Which set of office equipment would you suggest Sammy to purchase? Explain with relevant data and working. (5 marks) (b) Based on the above data and your answer of part (a), calculate the annual explicit cost, annual implicit cost and annual economic profit of Sammy's clinic in his first year of operations. List all items and show your working. (10 marks) (c) Base on your answer of part (b), would you recommend Sammy to operate the clinic? Should he resign from his current position? Why? (3 marks)

Answer rating: 100% (QA)

a Based on the information given it is recommended that Sammy purchase Set A o... View the full answer