Scenario 14-4 Victor Is the Recipient of $1 Million from a Lawsuit

question 1

Multiple Choice

Scenario 14-4
Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year.
-Refer to Scenario 14-4. At the end of the first year of operating his new business, Victor's accountant reported an accounting profit of $150,000. What was Victor's economic profit?

• A)-$150,000
• B)-$50,000
• C)-$25,000
• D)$25,000

---

Definitions:

Antitrust Legislation

Laws designed to promote competition and regulate monopolistic practices within the marketplace.

Sarbanes-Oxley Act

A U.S. federal law enacted in 2002 to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.

Corporate Fraud

Illegal activities undertaken by individuals or companies in a deceitful manner, intending to gain an unfair advantage.

Financial Reporting

The method of generating reports that reveal a company's financial condition to its management, investors, and governmental bodies.