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)

i might look it up later.

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