How Does the Accounting Rate of Return Differ from the Return

question 120

Multiple Choice

How does the accounting rate of return differ from the return on investment formula?

• A)They are not different;both are calculated by dividing net operating income by initial investment.
• B)The numerator in each formula differs;accounting rate of return divides net operating income by initial investment,and return on investment divides gross operating income by initial investment.
• C)The numerator in each formula differs;accounting rate of return divides net operating income by average invested assets,while return on investment divides gross operating income by average invested assets.
• D)The denominator in each formula differs;accounting rate of return divides net operating income by initial investment,while return on investment divides net operating income by average invested assets.

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Definitions:

Payroll Tax

Taxes that are imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their staff.

FICA Taxes

Taxes mandated by the Federal Insurance Contributions Act, which fund Social Security and Medicare, split between employers and employees.

Federal Income Taxes

Charges imposed by the national government on the yearly income of persons, businesses, trusts, and other legal bodies.

Payroll Tax Expense

Taxes that employers are required to pay on behalf of their employees, including contributions to social security, healthcare, and unemployment insurance.