Scenario 13-9 Ellie Has Been Working for an Engineering Firm and Earning

question 52

Multiple Choice

Scenario 13-9
Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500.
-Refer to Scenario 13-9. According to an economist, which of the following revenue totals will yield Ellie's business $50,000 in economic profits?

• A)$55,200
• B)$100,200
• C)$132,500
• D)$185,700

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Definitions:

Required Rate

This is the minimum expected rate of return on an investment, dictating the least acceptable compensation for investing capital.

Salvage Value

A prediction of what an asset will be worth on the market at the close of its effective life.

Project Life

The duration from the initiation to the completion of a project, encompassing all stages of development, execution, and finalization.

Profitability Index

A ratio or index that measures the relative profitability of an investment, calculated as the present value of future cash flows divided by the initial investment cost.