Question

Sam is planning to start a pool cleaning business. He expect to make a profit of $45,000 in his first year of business, after which he expects profits to increase by 5.5% annually for the next 5 years.
Sam's business will cost $49,500 to set up and run for the first year. Sam then expects an annual operational expense total of $30,500. According to Sam's model, how long will it take Sam to see an overall profit in his business (where total profits exceed total expenses)?
a.
Sam will see an overall profit in his first year of business.
b.
Sam will see an overall profit in his second year of business.
c.
Sam will see an overall profit in his third year of business.
d.
Sam will see an overall profit in his fourth year of business.

Answer 1

According to sam in his first year he will have a profit of 45,000 but a start up cost of 49500. so in his first year of business, he is still at loss for $ 4,500. and for the following year his profit will increase by 5.5 % and an operating cost of 30,500. so at year two, his profit = 45000(1.055^2) - 30,500 = 19,586. for that year. minus for the loss of last year/ 19,586 - 4500 = 15086 is his total profit in year 2. which means he will start earning in year 2.