Lakisha is a professor of economics. She is currently earning $100,000 a year as a professor. She decides to quit her job as a professor and opens a consulting firm. In order to do this, she cashes out her retirement fund of $200,000. Her retirement fund has been earning 10% interest each year. At the end of her first year as an economic consultant, she earns $120,000 in accounting profit. What was her economic profit for the year?

Question

Business

Kendall Carrillo

24 July, 02:04

Lakisha is a professor of economics. She is currently earning $100,000 a year as a professor. She decides to quit her job as a professor and opens a consulting firm. In order to do this, she cashes out her retirement fund of $200,000. Her retirement fund has been earning 10% interest each year. At the end of her first year as an economic consultant, she earns $120,000 in accounting profit. What was her economic profit for the year?

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Answers (1)

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Parker Nolan · Answer 1

The correct answer is $0.

Explanation:

According to the scenario, computation of the given data are as follows:

Accounting Profit = $120,000

Current earning = $100,000

retirement fund = $200,000

Interest from retirement fund = 10% * $200,000 = $20,000

So, we can calculate the economic profit by using following formula:

Economic profit = Accounting profit - Current earning - Interest from retirement fund

By putting the value, we get

= $120,000 - $100,000 - $20,000

= $20,000 - $20,000

= $0