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 percent, what is the net return on investment?
A)10 percent
B)5 percent
C)12 percent
D)15 percent

Question

Quizplus · Accepted Answer

The net return on investment is calculated by dividing the after-tax earnings by the average investment and then subtracting the cost of capital. In this case, ($150 / $1,000) - 10% = 15% - 10% = 5%.

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