Reference no: EM131373044
(This is a simplified question that you must answer; the answer "insufficient information" is unacceptable.)
Tara is considering leaving her current job, which pays $56,000 per year, to start a new company that manufactures a line of special pens for personal digital assistants. Based on market research, she projects that she can sell 160,000 units during the first year at a price of $20 per unit. She expects annual overhead costs and operating expenses amounting to $3,160,000.
a. If Tara decides to embark on her new venture, what will her accounting costs be during the first year of operation? Her opportunity costs? (Assume that her cost projections are accurate)
b. Based upon her projections, should Tara leave her job and start the business? Explain why or why not, using a calculation of economic profits in your answer.
c. Consider the estimated selling price of the pens--$20; suppose that she is unsure that this projected selling price is accurate and she wishes to calculate alternate selling prices. (Assume that here sales projection of 160,000 units is accurate, and her cost projection of $3,160,000 is also accurate.) What price per pen would she need to charge in order to earn $1 of positive accounting profits? $1 of positive economic profits? (Round your answers to the nearest penny, if necessary.)
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