When a company measures performance using economic profit,managers tend to invest in any project earning more than the cost of capital and,as a result,increase the firm's total profits.

Question

Quizplus · Accepted Answer

This statement is true as economic profit measures the difference between the revenue earned from a project and the total opportunity costs, including the cost of capital. Therefore, if a project earns more than the cost of capital, it is deemed profitable and managers are incentivized to invest in it to increase the firm's overall profits.

When a Company Measures Performance Using Economic Profit,managers Tend to Invest