A contractor is establishing a new business and estimates the following startup costs: equipment $45,000, initial inventory $12,000, office setup $8,000, insurance deposits $15,000, and working capital needs $25,000. What are the total startup costs?
Correct Answer
D) $105,000
Total startup costs = $45,000 + $12,000 + $8,000 + $15,000 + $25,000 = $105,000. All these components are essential startup expenses that must be planned for when establishing a contracting business.
Why This Is the Correct Answer
Option B ($105,000) is correct because it represents the accurate sum of all five startup cost components. This calculation includes equipment ($45,000), initial inventory ($12,000), office setup ($8,000), insurance deposits ($15,000), and working capital needs ($25,000). When establishing a contracting business, all these expenses must be accounted for in the initial capital requirements. The straightforward addition of these essential startup components yields the total of $105,000.
Why the Other Options Are Wrong
Option A: $95,000
Option A ($95,000) is incorrect because it falls short of the actual total by $10,000, suggesting an error in addition or omission of one of the startup cost components.
Option B: $125,000
Option D ($125,000) is incorrect because it exceeds the actual total by $20,000, showing a significant calculation error in adding the startup cost components.
Option C: $115,000
Option C ($115,000) is incorrect because it exceeds the actual total by $10,000, indicating an addition error or inclusion of an expense not listed in the problem.
Memory Technique
Remember 'EIIOW' - Equipment, Inventory, Insurance, Office, Working capital - the five essential startup cost categories that contractors must budget for when starting a business.
Reference Hint
Business and Finance for Contractors chapter on startup costs and capital requirements, or Florida Construction Industry Licensing Board study materials on business planning.
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