A contractor is planning to start a business and estimates the following startup costs: equipment $75,000, initial inventory $15,000, office setup $8,000, licensing and permits $3,500, and working capital needs $25,000. What is the total startup capital required?
Correct Answer
C) $126,500
Total startup capital = $75,000 + $15,000 + $8,000 + $3,500 + $25,000 = $126,500. This includes all necessary components for starting the business including equipment, inventory, setup costs, regulatory fees, and working capital for operations.
Why This Is the Correct Answer
Option C is correct because it represents the accurate sum of all startup cost components. The calculation includes equipment ($75,000), initial inventory ($15,000), office setup ($8,000), licensing and permits ($3,500), and working capital ($25,000). When added together, these five essential startup categories total exactly $126,500. This comprehensive approach ensures all necessary business launch expenses are accounted for in the startup capital planning.
Why the Other Options Are Wrong
Option A: $121,500
Option B ($121,500) is incorrect because it falls short of the actual total by $5,000, suggesting an arithmetic error or omission of part of the startup costs in the calculation.
Option B: $115,500
Option A ($115,500) is incorrect because it represents an incomplete calculation that appears to be missing one or more cost components, resulting in an underestimation of the total startup capital needed.
Option D: $131,500
Option D ($131,500) is incorrect because it exceeds the actual total by $5,000, indicating either an arithmetic error or the inclusion of costs not specified in the problem.
Memory Technique
Remember 'EIOLW' - Equipment, Inventory, Office, Licensing, Working capital - the five key startup cost categories that contractors must budget for when launching their business.
Reference Hint
Business and Finance for Contractors chapter on startup costs and capital requirements, or Construction Business Management section on financial planning.
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