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Janet is running a painting business. She receives $200,000 payment

from buyers at the end of year, at which time she also pays $20,000 fixed cost and 30% of the revenues as a variable cost.  


(1) An opportunity for new business opens for Janet from which she will make $100,000 accounting profits at the end of year.  If she takes this new business, then she has to reduce her work for painting business, so the revenue from painting business will drop by 30%. What will be the size of annual economic profit from the new business?  


(2) If the new business will last only for the next five years, so she can take the profits from the new business for five times starting from one year from now, what is the size of the value of the new business for Janet?  Assume that the annual interest rate is 5%.  

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Subject: Business, Management

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