An individuals annual income is $100,000. The person is considering opening thei

Question

An individuals annual income is $100,000. The person is considering opening their own business. Expected revenues for the business, if they open it, is 2 million the first year. Salaries for employees are expected to be 1.5 million. Operating expenses (rent, supplies, etc. ) are expected to be $250,000. To start the business the individual must borrow $500,000 from the bank at an interest rate of 15%. Equipment will cost $50,000. At the end of the year, the value of the equipment will be $30,000, even though the depreciation expense for tax purposes is only $5,000 during the first year. The pre-tax accounting profit will be: a. -28,000 b. 26,000 c. 50,100 d. None of above I tried and tried and got B but not sure. Please help.

Explanation / Answer

Income = 100,000 +2,000,000 ; Expenses = 1,500,000 + 250,000 ; Depreciation = 5000 ; Interest = 0.15*500000 ; Profit = Income - Expense - Depreciation - Interest = 270,000;

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