Joanne Left Her Last Job, in Which She Was Earning

question 335

Multiple Choice

Joanne left her last job, in which she was earning $50,000, in order to form her own consulting business. Her revenues for the first year of consulting were $200,000. During that year, she hired two assistants for $25,000 each and spent $25,000 on office equipment. In addition, she incurred $75,000 in miscellaneous expenses. Her economic profit that first year was

• A) $0.
• B) $50,000.
• C) $200,000.
• D) $75,000.

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Definitions:

Liquid Accounts

Refers to financial accounts which hold assets that can be readily converted into cash, often with little to no loss in value, such as savings accounts or money market accounts.

Profitability Ratios

Financial metrics used to evaluate a company's ability to generate profit relative to its revenue, assets, equity, or other financial metrics.

Net Income

The total profit of a company after all expenses and taxes have been deducted from total revenues; also known as net earnings or net profit.

Equity

Represents the shareholder's ownership interest in a company, calculated as the difference between total assets and total liabilities.