A contractor is starting a new business and estimates the following startup costs: equipment $45,000, office setup $12,000, initial inventory $8,000, licensing and permits $3,500, and working capital needs $25,000. What is the total startup capital required?
Correct Answer
B) $93,500
Total startup costs = $45,000 + $12,000 + $8,000 + $3,500 + $25,000 = $93,500. Proper calculation of startup costs is essential for securing adequate financing and ensuring business viability.
Why This Is the Correct Answer
Option B ($93,500) is correct because it represents the accurate sum of all five startup cost categories. The calculation involves adding equipment costs ($45,000), office setup ($12,000), initial inventory ($8,000), licensing and permits ($3,500), and working capital needs ($25,000). This comprehensive total ensures the contractor has accounted for all essential startup expenses required to begin operations legally and effectively.
Why the Other Options Are Wrong
Option C: $95,500
Option C ($88,500) is incorrect because it results in a total that is $5,000 less than the correct sum, indicating a significant calculation error or failure to include all startup cost categories.
Option D: $88,500
Option D ($95,500) is incorrect because it exceeds the correct total by $2,000, suggesting an addition error or inclusion of costs not specified in the problem.
Memory Technique
Remember 'EOILW' - Equipment, Office, Inventory, Licensing, Working capital - to ensure you include all five major startup cost categories when calculating total startup capital requirements.
Reference Hint
Florida Building Code Study Companion or Business and Finance for Contractors chapter on startup costs and business planning
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