You have worked as a real estate agent for 10 years
You have worked as a real estate agent for 10 years and are earningabout $100,000 per year with your current agency. You prepared thefollowing information to use in evaluating the financialfeasibility of starting your own agency:Revenues generated during the first year of operations: $1.5millionSalaries and other labor costs paid to employees during the firstyear of operations: $1 millionOperating expenses (e.g., rent, communications: $150,000Equipment purchases: $100,000 with a 5 year straight linedepreciationYou need $100,000 in equity, which you can withdraw from your bankaccount that is currently paying 2% per year in interest, and a$400,000 loan with a 15% interest rate.a. What is your expected pretax accounting profit from yourproposed agency?b. What is your expected pretax economic profit from your proposedagency?c. Identify the explicit versus implicit costs.
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