1. EXPLICIT AND IMPLICIT COSTS An annual income statement fromQuest Realty, Inc. is shown...

70.2K

Verified Solution

Question

Accounting

1. EXPLICIT AND IMPLICIT COSTS An annual income statement fromQuest Realty, Inc. is shown below: Revenues Revenue from sales ofgoods and services.............................. $80,000,000Operating costs and expenses: Cost of products and services sold.......................................... $30,000,000 Sellingexpenses..........................................................................$3,000,000 Administrativeexpense.............................................................$4,000,000 Total operating costs and expenses.................................. $37,000,000 Income fromoperations....................................................................$43,000,000 Interest expense (corporate bonds &loans)................................... $300,000 Non-recurringexpense (Legal expenses/fines in settling a federal antitrustsuit.................................................. $200,000Incometaxes.......................................................................................$700,000 Net income.........................................................................................$41,800,000 During this year of operation, Quest Realty owned andoccupied an office building in downtown Indianapolis. For thisyear, the building could have been leased to other businesses for$2,000,000 in lease income. Quest Realty also owned undevelopedland valued at $15,000,000. Owners of Quest Realty can earn a 14%rate of return annually on funds invested elsewhere.
Detail each of the items that make up the explicit costs forQuest Realty. Why are they explicit?
Detail each of the items that make up the implicit costs forQuest Realty for this year. Why are they implicit?
Over the next three years, a firm is expected to earn theeconomic profit of $50,000 in the first year, $60,000 in the secondyear, and $90,000 in the third year. After the end of the thirdyear, the firm goes out of business.
What would happen to the value of the firm if the adjusteddiscount rate went from 8 to 12 percent?
What does the discount rate increase mean?

Answer & Explanation Solved by verified expert

3.5 Ratings (547 Votes)

Explicit costs are outofpocket costs for a firmfor example payments for wages and salaries rent or material Details of Items that See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

In: Accounting1. EXPLICIT AND IMPLICIT COSTS An annual income statement fromQuest Realty, Inc. is shown below:...1. EXPLICIT AND IMPLICIT COSTS An annual income statement fromQuest Realty, Inc. is shown below: Revenues Revenue from sales ofgoods and services.............................. $80,000,000Operating costs and expenses: Cost of products and services sold.......................................... $30,000,000 Sellingexpenses..........................................................................$3,000,000 Administrativeexpense.............................................................$4,000,000 Total operating costs and expenses.................................. $37,000,000 Income fromoperations....................................................................$43,000,000 Interest expense (corporate bonds &loans)................................... $300,000 Non-recurringexpense (Legal expenses/fines in settling a federal antitrustsuit.................................................. $200,000Incometaxes.......................................................................................$700,000 Net income.........................................................................................$41,800,000 During this year of operation, Quest Realty owned andoccupied an office building in downtown Indianapolis. For thisyear, the building could have been leased to other businesses for$2,000,000 in lease income. Quest Realty also owned undevelopedland valued at $15,000,000. Owners of Quest Realty can earn a 14%rate of return annually on funds invested elsewhere.Detail each of the items that make up the explicit costs forQuest Realty. Why are they explicit?Detail each of the items that make up the implicit costs forQuest Realty for this year. Why are they implicit?Over the next three years, a firm is expected to earn theeconomic profit of $50,000 in the first year, $60,000 in the secondyear, and $90,000 in the third year. After the end of the thirdyear, the firm goes out of business.What would happen to the value of the firm if the adjusteddiscount rate went from 8 to 12 percent?What does the discount rate increase mean?