QCT1
Question 9: How is the concept of a normal return on investment related to the distinction between business and economic profit?
The difference between the business profit which is useful for accounting and tax purposes and economic profit is that in economic profit, profit is calculated by revenue of the firm minus its explicit costs and implicit costs. On the other hand, business profit refers to the revenue of the firm minus the explicit or accounting cost of the firm. Now, in business accounting normal return is the minimum profit that is required to cover the expenditures of the firm’s inputs and all of the expenses associated with it. A profit will be anything greater than the breakeven profit. On the other hand, economic profit is just forgone cost estimation. Therefore, normal profit is required in business profit and not in economic profit, which is one of the differences between the two types of profits.
Problem 6: Determine which of the two investment projects of Problem 5 the manager should choose if the discount rate of the firm is 20 percent.
Project 2
Answer is: 450,000/1+.2
Problem 9: A women managing a photocopying establishment for 25,000 per year decides to open her own duplicating place. Her revenue during the first year of operation is $120,000 and her expenses are as follows a. Explicit cost $81,000 b. Implicit cost $35,000 c. Business profit $39,000 d. Economic profit $4,000 e. Normal return on investment $4,000

Froeb and McCann’s Chapter 3
3-2
Answer is: It is better to rent because you give up $20,000 down
3-3
Answer is B

Salvatore’s Chapter 3
Discussion Question 9
Answer: My reaction would not be good. One tool for optimization is performance management. So executives are holding departments accountable for the work in their departments not in other people departments. The correct way of