The Decision Technique That Measures the Estimated Performance of a Capital

question 57

Multiple Choice

The decision technique that measures the estimated performance of a capital investment by dividing the project's annual after-tax income by the average investment cost is called the:

• A) Break-even point for the project.
• B) Internal rate of return (IRR) on the proposed investment.
• C) Accounting (book) rate of return (ARR) on the investment.
• D) Capital asset pricing rate of return.
• E) Profitability index (PI) for the investment.

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Definitions:

Expected Interest Rate

The forecasted cost of borrowing money or the rate at which investment returns are anticipated to grow over a specific period.

Semiannual Interest

Interest that is calculated and paid twice a year, often used in bond markets to denote the interest payments made to bondholders.

Ask Price

The lowest price a seller is willing to accept for a security in the financial markets.

Invoice Price

The price that appears on the invoice from the manufacturer to the dealer, often not reflecting the actual price a consumer pays.