Economic Profits Are Calculated by Subtracting

question 71

Multiple Choice

Economic profits are calculated by subtracting

• A)explicit costs from total revenue.
• B)implicit costs from total revenue.
• C)implicit costs from normal profits.
• D)explicit and implicit costs from total revenue.

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Definitions:

Required Rate of Return

The minimum expected return by an investor for investing in a risky asset, considering the risk involved.

FCFF

Free Cash Flow to Firm; a measure of financial performance that expresses the net amount of cash that is generated for the firm, inclusive of financing and debt service.

EBIT

Earnings Before Interest and Taxes, a measure of a company's profitability that excludes the effect of financial and tax decisions.

Depreciation

The allocation of the cost of an asset over its useful life, reflecting the decrease in value due to use and age.