A firm has an average investment of $100,000 during the year.During the same period,the firm generates an after-tax income of $16,000.If the cost of capital is 15%,what is the economic profit?
A)+$16,000
B)+$15,000
C)+$1,000
D)-$1,000

Question

Quizplus · Accepted Answer

Economic profit = After-tax income - (Average investment * Cost of capital)= $16,000 - ($100,000 * 0.15)= $16,000 - $15,000= $1,000

A Firm Has an Average Investment of $100,000 During the Year.During