Question: Your cousin owns a shop in Wisconsin. Last year sales revenue for her shop was $380,000. Her variable operating costs are $275,000 per year. An additional cost is the annual interest expenses on the bank loan of $13,000. Inventory and the building she owns have a current market value of $480,000. She owes a local bank $260,000 in a business loan. A store in a local mall offers her a job paying $50,000 per year to manage their store, but she would have to close her store. If she liquidated her inventory and sold the store, she could invest the remaining money to earn 5% annually.

1. Compute her accounting profit.
2. Compute her economic profit.
3. She asks you for advice on whether to close the store and take the manager job, or to stay and run her own store. Which do you recommend and why?
4. How would your recommendation change if a mall store offered her a salary of $75,000?

Price: $2.99

Solution: The downloadable solution consists of 3 pages
Deliverable: Word Document