Question

Deep wants to give up his job as a financial analyst & start his own firm....

Deep wants to give up his job as a financial analyst & start his own firm. He plans to use his savings to start off, which are currently giving him an annual return Rs24,000. His monthly expenses on electricity, stationery & rent of his office are Rs 10,000, Rs2,000 & Rs 6,500 respectively. He is currently drawing a salary of Rs 2,50,000 per year.

01. If he hopes to earn a revenue of Rs 50,000 per month, is he justified in starting the business?

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Answer #1

Find the annual expenses on electricity is stationary and rent

= (10000 + 2000 + 6500)*12

= 222,000

This is the explicit cost.

He is planning to use his saving which is having a return of 24000 per year currently. His annual salary is 250000 which is an implicit cost. Therefore a total of 274000 per year will be the implicit cost. Total cost will be the sum of explicit cost and implicit cost and this is 222000 + 274000 = 496000. Revenue is 50000 each month which means it will be 600000

Total revenue is greater than total cost which indicates that he is justified in starting his business because he is having an economic profit

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