If Instead of Working on His Own as a Consultant

question 32

Multiple Choice

If instead of working on his own as a consultant making $25,000, Joe takes a job at a bank, the $25,000 is

• A) an opportunity cost.
• B) a depreciation.
• C) a loss.
• D) an accounting profit.

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Definitions:

Discounted Cash Flows

A valuation method used to estimate the value of an investment based on its future cash flows, adjusted for the time value of money.

Average Accounting Return

A financial ratio that represents the average annual income as a percentage of the initial investment, used in capital budgeting to estimate the profitability of potential investments.

Expected Profit

The anticipated return from an investment or business activity, considering probabilities of various outcomes.

Straight-Line Depreciation

A technique for computing an asset's depreciation that presumes the asset depreciates by a consistent amount annually throughout its expected lifespan.