Calculate the economic profit generated by a business with a capital cost of 5% for $680 million of capital invested and a net profit of $40 million.
A)$18.5 million
B)$10 million
C)$6 million
D)$35 million
E)$22.5 million

Question

Quizplus · Accepted Answer

Economic profit is calculated as net profit minus the cost of capital. The cost of capital is 5% of $680 million, which is $34 million. Therefore, the economic profit is $40 million - $34 million = $6 million.

Calculate the Economic Profit Generated by a Business with a Capital