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Entrepreneurial Decision Analysis
An architect is currently employed at a firm, earning an annual salary of $90,000. They are considering quitting their job to start their own architectural practice. They project that their new practice will generate $200,000 in annual revenue. They anticipate spending $80,000 on office rent, software licenses, and other direct business expenses. To fund the startup, they will use $50,000 from their personal savings, which currently earns 4% interest per year.
Based on these figures, calculate the architect's expected annual accounting profit and economic profit. Then, advise the architect on whether they should start their own practice from a purely financial perspective, justifying your recommendation by explaining the implications of each profit calculation.
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