A Potential Entrepreneur Is Trying to Decide Whether to Open

question 91

Essay

A potential entrepreneur is trying to decide whether to open a new health spa.She presently makes $35,000 per year as an aerobics instructor and will have to give up this job if she opens the new health spa.If she chooses to open the spa, it will cost her $200,000 per year in rent and other operating expenses.
a.What are her accounting costs?
b.What are her opportunity costs?
c.How much would she need to make in revenues to earn positive accounting profits? Positive economic profits?

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Definitions:

Forward Rate

An agreed-upon interest rate for a loan or investment to be initiated in the future, used in forward contracts and financial planning.

British Security

Financial instruments issued by the United Kingdom, including government bonds, stocks, and other securities, used for investment purposes.

Fixed Exchange Rate

A country's currency exchange rate regime under which the government or central bank ties the official exchange rate to another country's currency or to the price of gold.

Covariance

A measure of how two stocks move together, indicating the degree to which their returns are related.