A contractor is starting a new business and estimates the following startup costs: equipment $85,000, initial inventory $15,000, office setup $8,000, licensing and permits $3,500, and working capital $25,000. What are the total startup costs?
Correct Answer
C) $136,500
Total startup costs = $85,000 + $15,000 + $8,000 + $3,500 + $25,000 = $136,500. All these items represent necessary initial investments to begin operations.
Why This Is the Correct Answer
Option C is correct because it represents the accurate sum of all startup cost components. The calculation involves adding equipment ($85,000), initial inventory ($15,000), office setup ($8,000), licensing and permits ($3,500), and working capital ($25,000). This totals exactly $136,500, which includes all necessary initial investments required to begin contracting operations.
Why the Other Options Are Wrong
Option A: $128,500
Option B ($133,500) is incorrect because it's $3,000 less than the correct total, indicating an error in the addition process or missing a portion of the startup costs.
Option D: $141,500
Option D ($141,500) is incorrect because it's $5,000 more than the correct total, suggesting an addition error or inclusion of costs not listed in the problem.
Memory Technique
Remember 'EIOLW' - Equipment, Inventory, Office, Licensing, Working capital - the five essential startup cost categories that contractors must budget for when beginning operations.
Reference Hint
Business and Finance Management chapter, specifically sections covering startup costs and initial capital requirements for contracting businesses.
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