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

question 47

Multiple Choice

A firm has an average investment of 100,000 during the year. During the same period, the firm has 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) None of the above

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Definitions:

Accounting

The systematic process of recording, measuring, and communicating financial information about economic entities.

Recording

The act of documenting financial transactions in the books of accounts as part of the accounting process.

Transactions

Financial events that affect the assets, liabilities, or equity of a company, recorded in its accounting system.

Accounting

The systematic process of recording, measuring, and communicating information about financial transactions.