A firm has an average investment of $1,000 during the year.During the same time,the firm generates after-tax earnings of $150.
If the cost of capital is 10%,what is the net return on investment?
A)10%
B)5%
C)12%
D)15%

Question

Quizplus · Accepted Answer

The net return on investment is calculated as (After-tax earnings - Cost of capital) / Average investment. Here, the cost of capital is $100 (10% of $1,000), so the net return is ($150 - $100) / $1,000 = 5%.

A Firm Has an Average Investment of $1,000 During the Year.During