Reportdd the report for share

1. Tara is considering leaving her current job, which pays $56,000 per year, to start a new company that manufactures a line of special pens for personal digital assistant. Based on market research, she can sell about 160,000 units during the first year at a price of $20 per unit. With annual overhead costs and operating expense amounting $3,160,000, Tara expects a profit margin 25 percent. This margin is 6 percent larger than that of her largest competitor, Pens, Inc.

1. If Tara decides to embark on her new venture, what will her an accounting costs be during the first year of operation? Her implicit costs? Her opportunity costs?

1. • Accounting costs = Explicit costs = Cost from production and operation processes = $3,160,000
   • Implicit costs = Tara’s forgone salary = $56,000
   • Opportunity cost = accounting cost + implicit cost = $3,216,000

1. Suppose that Tara’s estimated selling price is lower than originally projected during the first year. How much revenue would she need in order to earn positive accounting profits? Positive economic profits?

• bring in more than $3,160,000 in revenue to earn positive accounting profits à $3,160,000/160,000 = $19.75 per unit
• bring in more than $3,216,000 in revenue to earn positive economic profits à $3,216,000/160,000 = $20.10 per unit

For the first year, even if her projected price at $20 is right, she will earn some accounting profit but still not gain the economic profit.

Change in total costs arising from a change in the control variable, Q

Change in total benefits arising from a change in the control variable, Q

that it is the firm’s goal to maximization profits.

so the firm is maximizing its value.

NPV < 0: Reject project

NPV > 0: Accept project