Scenario 14-2
As part of an estate settlement, Mary received $1 million.She decided to use the money to purchase a small business.If Mary had invested the $1 million in a risk-free bond fund she could have made $80,000 each year.She also quit her $75,000 per year job to devote all of her time to her new business.
-Refer to Scenario 14-2.How large would Mary's accounting profits need to be to allow her to attain zero economic profit

Question

Quizplus · Accepted Answer

In order for Mary to attain zero economic profit, she would have to earn at least $80,000 in accounting profits (the amount she would have earned annually in a risk-free bond fund) and compensate for the opportunity cost of quitting her $75,000 per year job. Therefore, the total accounting profits needed would be $80,000 + $75,000 = $155,000.

Scenario 14-2 As Part of an Estate Settlement, Mary Received $1 Million.She