The Formula for Calculating the Accounting Rate of Return for a Capital

question 126

Multiple Choice

The formula for calculating the accounting rate of return for a capital asset is

• A)average annual operating income from asset/amount invested in asset.
• B)average annual net cash inflow from asset/amount invested in asset.
• C)(average annual operating income + depreciation expense)/amount invested in asset.
• D)(average annual cash inflows - depreciation expense)/(amount invested in asset + residual value of asset).

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Definitions:

Productivity

A measure of average output or real output per unit of input. For example, the productivity of labor is determined by dividing real output by hours of work.

Land Taxes

Taxes imposed on property owners based on the value of their land, commonly used by governments as a source of revenue.

Incentive Function

The inducement that an increase in the price of a commodity gives to sellers to make more of it available (and conversely for a decrease in price), and the inducement that an increase in price offers to buyers to purchase smaller quantities (and conversely for a decrease in price).

Rental Payments

Rental payments are periodic payments made by a tenant to an owner for the use of property, such as for housing or commercial space.