Tara is considering leaving her current job, which pays $85,000 per year, to start a new company that manufactures a line of special pens for personal digital assistants. Based on market research, Tara estimates that she can sell about 150,000 units during the first year at a price of $25 per unit. With annual overhead costs and operating expenses amounting to $3,350,000, Tara expects her new business to be profitable.
Suppose that Tara is not completely confident in her sales estimates. Assuming a price of $25, how many units would Tara need to sell in order to earn positive accounting profits? Positive economic profits?
Based on your answers above, is starting the new company a good financial decision?