Answer and Explanation:
The computation is shown below:
a. The pre tax accounting profit is
= Revenue - operating expenses - salaries - depreciation - interest on loan
= $2,000,000 - $250,000 - $1,500,000 - $5,000 - ($500,000 × 15%)
= $2,000,000 - $250,000 - $1,500,000 - $5,000 - $75,000
= $170,000
b. The pre tax economic profit is
= Revenue - operating expenses - salaries - foregone income - actual depreciation - interest on loan
= $2,000,000 - $250,000 - $1,500,000 - $100,000 - $20,000 - $75,000
= $55,000
The actual depreciation is
= $50,000 - $30,000
= $20,000
c. The explicit cost is the cost which includes wages & salaries, operating expense, depreciation expenses etc while the implicit cost includes the opportunity cost and annual depreciation cost
