Question

Imagine Tom's annual salary as an assistant store manager is $30,000, he owns a building that rents for $10,000 yearly, and his financial assets generate $1,000 per year in interest. One day, after deciding to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle repair shop. To run the business, he outlays $15,000 in cash to cover all the costs involved with running the business, and earns revenues of $50,000. Tom should: A. close his shop and go back to what he was doing before with his time and assets, because it was earning him $6,000 more than he's earning now. B. keep his shop going because he's earning a healthy $35,000 a year. C. keep his shop going because he's earning $5,000 more than his salary before. D. None are correct.

Answer 1

B. keep his shop going because he's earning a healthy $35,000 a year

Step-by-step explanation:

Imagine Tom's annual salary as an assistant store manager is $30,000, he owns a building that rents for $10,000 yearly, and his financial assets generate $1,000 per year in interest. One day, after deciding to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle repair shop. To run the business, he outlays $15,000 in cash to cover all the costs involved with running the business, and earns revenues of $50,000.

Tom's accounting profits = $50,000 - $15,000 = $35,000