Terry and Jim Are Both Involved in Operating Illegal Businesses

question 1

Multiple Choice

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses.
Which of the following statements is correct?

• A)Neither Terry nor Jim can deduct any of the above items in calculating the business profit.
• B)Terry should report profit from his business of $250,000.
• C)Jim should report profit from his business of $500,000.
• D)Jim should report profit from his business of $250,000.
• E)None of the above.

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Definitions:

Discount Rate

The rate of interest known as the discount rate is employed in discounted cash flow analysis to figure out the current value of cash flows expected in the future.

Working Capital

A measure of a firm's ability to fulfill short-term financial obligations, underscored by its liquid assets minus its due debts.

Salvage Value

The appraised remaining value of an asset at the point of its life end.

Pretax Return

The earnings of a company before taxes have been deducted.