We need to use the following formula to calculate the present value:
Present value = Future value / ( 1 + r ) / n
In which, r is the rate of interest (here, r = 5% = 0.05) and n is the number of years (here, n=1)
A. What is accounting profit?
Accounting profit is net income earned after subtracting all dollar costs from total revenue.
Accounting profit at the end of the year
= Revenue - Explicit costs
= $120,000 - $40,000
= $80,000
So, the present value of the accounting profit
= $80,000 / ( 1 + 0.05 )1
= $80,000 / 1.05
= $76,190.48
B. What is economic profit?
An economic profit is the difference between the revenue received from the sale of an output and the costs of all inputs used, as well as any opportunity costs.
Economic profit at the end of the year
= Accounting profit - Implicit costs
= $80,000 - $55,000
= $25,000
So, the present value of the economic profit
= $25,000 / ( 1 + 0.05)1
= $25,000 / 1.05
= $23,809.52
Learn more about Accounting and economic profits here: https://brainly.com/question/8960234
