In the Formula for Return on Investment,interest Expense Is Multiplied

question 50

Multiple Choice

In the formula for return on investment,interest expense is multiplied by (1 - tax rate) .Why is this adjustment made?

• A)Interest is not tax deductible
• B)Debt is excluded from the denominator
• C)Net income in the formula is after tax
• D)Dividends are not deductible for tax purposes
• E)None of the answers are correct.

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Definitions:

Compounded Daily

Describes the method by which interest is calculated on an investment or loan with the earned interest being added to the principal daily for future interest calculations.

Annual Percentage Yield

The real rate of return earned on an investment, taking into account the effect of compounding interest.

Compounded Daily

Refers to the method of calculating interest where the accumulated interest is added to the principal sum every day.

Interest

The charge for the privilege of borrowing money, typically expressed as an annual percentage rate.