Question

the equity of the corporation, a measure of the value of its assets less debt, is estimated to be 200000. linda forgoes a return of 10% per year by keeping the equity in the corportation. the total revenue this year was 295000. this means that

Answer 1

Economic profit = $5000

Step-by-step explanation:

given data

value of assets less debt = 200000.

return = 10% per year

total revenue this year = 295000

solution

we consider here that

payroll wage and salaries = $100000

interest paid = 40000

depreciation on equipment = 80000

supplies utility = 50000

so here we get first Total cost that is

Total cost = payroll + interest paid + depreciation + supplies .................1

put here value and we get

Total cost = 100000 + 40000 + 80000 + 50000

Total cost = $270000

Thus,

Accounting profit = Total revenue - total cost ..............2

Accounting profit = 295000 – 270000

Accounting profit = $25000

and we know Opportunity cost is

Opportunity cost = 10% of $200000

Opportunity cost = 10% × 200000

Opportunity cost = $20000

so here Economic profit will be

Economic profit = accounting profit - opportunity cost ..............3

Economic profit = 25000 - 20000

Economic profit = $5000