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Technical Problems

2. During a year of operation, a firm collects $175,000 in revenue and spends $80,000 on raw materials, labor expense, utilities, and rent. The owners of the firm have provided $500,000 of their own money to the firm instead of investing the money and earning a 14 percent annual rate of return.

a. The explicit costs of the firm are $_________. The implicit costs are $________ economic cost is $ _________.
b. The firm earns economic profit of $___________.

c. The firm’s accounting profit is $_____________. .
d. If the owners could earn 20 percent annually on the money they have invested in the firm, the economic profit of the firm would be ___________.
.

Applied Problems

5. Explain why it would cost Rafael Nadal or Venus Williams more to leave the profes-sional tennis tour and open a tennis shop than it would for the coach of a university tennis team to do so.

Mathematical Exercises

1. Using a discount rate of 6.5 percent, calculate the present value of a $1,000 profit payment to be received at the end of

a. One year

b. Two years

c. Three years

2. What is the present value of a firm with a five-year life span that earns the following stream of expected profit? (Treat all profits as being received at year-end.) Use a risk-adjusted discount rate of 12 percent.

• Year 1 expected profit is $10,000
• Year 2 expected profit is $20,000
• Year 3 expected profit is $50,000
• Year 4 expected profit is $75,000
• Year 5 expected profit is $50,000

 In all written work use APA formatting, to include double-spacing, Times New Roman 12-point font, and APA formatted citations and references.