A firm produces $65 million of net income on $2,030 million of assets.Given that investors expect a 5% return,what is the economic profit?

Question

Quizplus · Accepted Answer

Economic profit is calculated as net income minus the expected return on assets. The expected return is 5% of $2,030 million, which is $101.5 million. The economic profit is $65 million (net income) - $101.5 million (expected return) = -$36.5 million.

A Firm Produces $65 Million of Net Income on $2,030