Albie Operates an Illegal Drug­running Business and Has the Following

question 106

Essay

Albie operates an illegal drug­running business and has the following items of income and expense. What is Albie's adjusted gross income from this operation?
$\begin{array}{lr}\text { Income }&\$800,000\\\text { Expenses: }\\\text { Rent } & 24,000 \\\text { Utilities } & 9,000 \\\text { Bribes to police } & 55,000 \\\text { Medical expense } & 5,000 \\\text { Legal fees } & 25,000 \\\text { Depreciation } & 30,000 \\\text { Illegal kickbacks } & 30,000 \\\text { Cost of goods sold } & 300,000\end{array}$

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Definitions:

ROE

Return on Equity, a measure of financial performance calculated by dividing net income by shareholder equity, indicating how effectively management is using a company’s assets to create profits.

Earnings Retention Ratio

The earnings retention ratio, also known as the plowback ratio, measures the percentage of net income that is retained in the company rather than being paid out as dividends.

Market Capitalization Rate

Market capitalization rate, or "cap rate", is used in evaluating and comparing the expected returns on investments in the equity market, reflecting the cost of capital for a company.

P/E Ratio

The price-to-earnings ratio, a valuation metric calculated by dividing the current market price of a stock by its earnings per share.