An investment's average net income divided by its average book value is the:
A) Net present value.
B) Internal rate of return.
C) Average accounting return.
D) Proﬁtability index.
E) Payback period.

Question

Quizplus · Accepted Answer

The average net income divided by the average book value is the definition of the average accounting return, making option C the correct choice. The net present value is the difference between the present value of cash inflows and outflows, the internal rate of return is the discount rate that makes the net present value equal to zero, the profitability index is the present value of cash inflows divided by the initial investment, and the payback period is the time it takes for an investment to recover its initial cost.

An Investment's Average Net Income Divided by Its Average Book