Question

Sam's business will cost $49,500 to set up and run for the first year. Sam then expects an annual operational expense total of $30,500. According to Sam's model, how long will it take Sam to see an overall profit in his business (where total profits exceed total expenses)?

Answer 1

Within 2 years

Step-by-step explanation:

1st year of Sam's business:

Operational expense = $30,500

Profit = $45,000

Business set up costs = $49,500

Overall business profit (Loss) = $(4,500)

2nd Year of Sam's business:

Since the profit will be increased by 5.5%, the new profit after operational expenses will be $45,000 + $(45,000 x 5.5%) = $47,475

Therefore, the overall profit = Last year's loss + This year's profit = $(-4,500+47,475) = $42,975

Therefore, he can achieve the overall profit within 2 years' of operation.