The net and economic profits generated by Hoddle Inc.are $320 million and $16 million,respectively,at 8% cost of capital.Calculate the total capital invested.
A)$3.8 billion
B)$5.6 billion
C)$1.25 billion
D)$8.8 billion
E)$840 million

Question

Quizplus · Accepted Answer

Economic profit is calculated as net profit minus the cost of capital. Here, the economic profit is $16 million, and the cost of capital is 8%. To find the total capital invested, we use the formula: Economic Profit = Net Profit - (Total Capital Invested * Cost of Capital). Rearranging the formula to solve for Total Capital Invested gives us: Total Capital Invested = (Net Profit - Economic Profit) / Cost of Capital = ($320 million - $16 million) / 8% = $304 million / 0.08 = $3.8 billion.

The Net and Economic Profits Generated by Hoddle Inc