An owner can lease her building for $120,000 per year for three years. the explicit cost of maintaining the building is $40,000, and the implicit cost is $55,000. all revenues are received, and costs borne, at the end of each year. if the interest rate is 5 percent, determine the present value of the stream of: a. accounting profits b. economic profits

A) Accounting profits dont take implicit costs into account, only "real" or quantifiable costs. Thus the present value of a 120,000 lease at 5% for three years with explicit costs of $40,000 maintenance is: 

PV = [ FV/(1+r)^n ] - (Explicit Cost) 

PV = 120000/(1.05^3) - (40000*3) B) same thing but add implicit costs ... 

PV = 120000/(1.05^3) - (40000*3) - (55000*3)

you will have $2593.74 in 10 years if you set aside $1,000 at 10%

you will have $9321.91 in 20 years if you set aside $2000 at 8%

you will have $1469.32 in 5 years if you set aside $1000 at 8%

you will have $1296.87 in 10 years if you set aside $500 at 10%

you will have $239.66 in 15 years if you set aside $100 at 6%

you will have $4660.96 in 20 years if you set aside $1000 at 8%