Reference no: EM133598598

Question: Dr. Sze starts his own dental practice after quitting his job at the ABC Dental Clinic earning $180,000 per year. His revenues in the coming year are $600,000. He paid $90,000 in rent for the dental office, $60,000 for his office manager's salary, $24,000 for the dental hygienist, $150,000 for insurance, and $6,000 for other miscellaneous costs. Dr. Sze also needs to buy an equipment that costs him $300,000. In the first year, the value of the equipment will decrease by 25%, which is also the accounting rule used for the depreciation of this machine. To finance the initial investment and operating costs, Dr. Sze has to use his saving of $200,000, from which he could earn an interest of 1 percent in the coming year. He also has to borrow $400,000 at 2.5 percent from a bank in the coming year. [Assume that he can recover these amounts whenever he decides to terminate this business.] Considering the risk involved, he believes that he can earn an economic profit of $20,000 from an alternative investment similar to this if starting his own dental practice is impossible. a) How large are the implicit cost of Dr. Sze's dental practice in the coming year? Show which items should be involved in each type of cost.