Students worked in investment bank at salary

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Reference no: EM131990258

Two former Yale University students worked in an investment bank at a salary of $ 60,000 each for 2 years after they graduated. Together they saved $ 50,000. After 2 years, they decided to quit their jobs and start a business designing Web sites. They used the $ 50,000 to buy computer equipment, desks, and chairs. For the next 2 years, they took in $ 40,000 in revenue each year, paid themselves $ 10,000 annually each, and rented an office for $ 18,000 per year. Prior to the investment, their $ 50,000 was in bonds earning interest at a rate of 10 percent. Are they now earning economic profits? Explain your answer.

Reference no: EM131990258

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