The Average Accounting Rate of Return

question 29

Multiple Choice

The average accounting rate of return:

• A) Is actually based more on financial values than on accounting values.
• B) Measures net income against the market value of a firm.
• C) Is highly recommended by financial professionals as one of the two best methodologies used in the analysis of independent projects.
• D) Is the primary methodology used in analyzing independent projects.
• E) Is similar to the return on assets ratio.

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Definitions:

Contribution Margin Ratio

A financial metric indicating how much of each sales dollar contributes to fixed costs and profit after variable costs are covered.

Target Pre-tax Income

The income goal set by a company before any taxes are applied.

Contribution Margin Per Unit

The difference between the selling price per unit and the variable cost per unit.

Pretax Income

The amount of income earned by a business before any taxes have been deducted, reflecting the company's profitability.