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Economic Profit = Net Operating Profit After Taxes (NOPAT) - Invested Capital * Weighted Average Cost of Capital (WACC) where, Invested Capital = Net working
- Economic Profit = Net Operating Profit After Taxes (NOPAT) - Invested Capital * Weighted Average Cost of Capital (WACC) where, Invested Capital = Net working capital needed for operations + Fixed assets net of accumulated depreciation + Other assets needed for operations
- Think about this definition of economic profit in answering the following questions.
- (B1) Explain the difference between accounting profit and economic profit.
- (B2) Explain how using economic profit as a managerial metric might encourage closer integration (i) between various functions within an organization and (ii) between partner organizations in the supply chain.
- (B3) Describe three additional financial metrics and give concrete examples of how using these metrics could improve (or not) decision making in the supply chain.
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