Which of the following gives a more accurate calculation of return on investment and residual income?
A) Total capital invested
B) Total assets
C) Average invested capital
D) Average cost of capital

Question

Quizplus · Accepted Answer

Average invested capital is a better choice as it takes into account the fluctuation in capital investment over time. It is calculated by averaging the beginning and ending capital investment. Total assets (B) can skew the return calculation as it includes non-operating assets, and total capital invested (A) does not account for changes in investment over time. Average cost of capital (D) is not a measure of return on investment or residual income, but rather the cost of financing the investment.

Which of the Following Gives a More Accurate Calculation of Return