Pat Used to Work as an Aerobics Instructor at the Local

question 7

Multiple Choice

Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat quit that job and started working as a personal trainer. Pat makes $50,000 in total annual revenue. Pat's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. Pat's accounting profit is ________, and Pat's economic profit is ________.

• A)$50,000; $15,000
• B)$34,000; −$1,000
• C)$34,000; $15,000
• D)$15,000; −$1,000

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Definitions:

Useful Life

The estimated duration a fixed asset is expected to be economically usable, with normal repairs and maintenance, for its intended purpose.

Cash Payback Period

The duration it takes for an investment to generate an amount of cash equal to the initial investment cost.

Salvage Value

The estimated residual value of an asset at the end of its useful life, representing what it could be sold for or its scrap value.

Straight-Line

A depreciation method that equally spreads the cost of an asset over its useful life.