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Category - Management

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Companies aim to earn more than “normal profits.” What are normal profits?
  1. The cost of doing business plus a bit more
  2. An equal return on investment for an investment with equal risk
  3. Whatever profit the company made during last year, plus inflation
  4. Normal profits depend on the industry.
Explanation
Answer: B - Normal profits give the same return on investment as a different investment that is equally risky. Portfolio management is primarily a process of balancing risk and expected returns, so having high returns relative to risk makes a company more attractive to investors.
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