Mythier plc, in its first year, produced profits after deduction of tax but before deduction of interest of £1m. The amount invested by debt holders was £4m. Equity holders also invested £4m. Interest paid during the year was

£0.24m and the weighted average cost of capital is 8 per cent, while the cost of equity capital is 10 per cent.

a Calculate economic profit using the entity approach.

b Calculate economic profit using the equity approach.

c Describe the advantages of using economic profit in the modern corporation.

d Explain the difficulties with economic profit.