Question

Assume that a carpenter borrowed \(2,000 to be paid off in a year to finance a machine that would make him work faster. As a result, she is able to take on more projects and collect \)400 more earnings in the first year, after paying off the principal of $2,000. However, there is a 15% rental fee (interest) on her loan, which she also has to pay off. What is the carpenter’s net earnings for the first y

Short answer

Extra earning will be $100

Step-by-step solution

Step 1. Introduction

Gross earnings minus obligatory withholdings and deductions, such as state and federal income tax and social security contributions, equals net earnings, also known as net income.

Step 2. Explanation

As per the information given in the question the total amount borrowed is $2000 that is to be paid in one year, the rental fee is 15% and she ear about $400 in first year.

$$\begin{gathered} ExtraEarning=Earning-\left(Amountborrowed\times \frac{15}{100}\right) \\ =\$400-(\$2000\times 0.15) \\ =\$400-\$300 \\ =\$100 \end{gathered}$$