Scott used $4,000,000 from his savings account that paid an annual interest of 5% and a $60,000 loan at an annual interest rate of 5% to purchase a hardware store.After one year,Scott sold the business for $4,100,000. His economic profits is:

Question

​Scott used $4,000,000 from his savings account that paid an annual interest of 5% and a $60,000 loan at an annual interest rate of 5% to purchase a hardware store.After one year,Scott sold the business for $4,100,000. His economic profits is:

Quizplus · Accepted Answer

Scott's total investment includes his savings and the loan, totaling $4,060,000. The interest on his savings and loan for one year at 5% is $203,000 ($4,060,000 * 0.05). Selling the business for $4,100,000, he makes a gross profit of $40,000 ($4,100,000 - $4,060,000). Subtracting the interest expense of $203,000 from the gross profit results in an economic loss of $163,000, not $103,000 as stated. However, since none of the provided choices accurately reflect the correct calculation, the closest applicable choice based on the provided options is D, acknowledging an economic loss, albeit with an incorrect amount.

​Scott Used $4,000,000 from His Savings Account That Paid an Annual

Scott Used $4,000,000 from His Savings Account That Paid an Annual