Question

What is the difference between accounting profit and economic profit?Accounting profit emphasizes cost of debt and equity while economic profit focuses on cost of debt.Accounting profit is synonymous with NI, while economic profit represents EPS.Accounting profit accounts for interest expense while economic profit accounts for interest expense and opportunity cost.Accounting profit can be calculated by NOPAT – [WACC × (Costly Capital)], while economic profit is simply NI.

Answer 1

The answer is C. Accounting profit accounts for interest expense while economic profit accounts for interest expense and opportunity cost.

Step-by-step explanation:

Accounting cost is the difference between total revenue and total cost. The total cost are related to the operation of the business. These cost are also known as explicit cost. Accounting cost does not consider implicit cost(opportunity cost) Examples of accounting cost are interest expense, depreciation expense, cost of sales etc.

Economic cost is the difference between total revenue and the addition of explicit and implicit cost. Implicit cost(opportunity cost) is the cost of alternative forgone i.e the course of action that was abadoned for the current action. Economic cost considers all the accounting cost and the Implicit cost