The Return Generated by an Investment Based on Its Operating

question 75

Multiple Choice

The return generated by an investment based on its operating income is the

• A)Internal rate of return.
• B)Discounted rate of return.
• C)Accounting rate of return.
• D)Payback period.

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Definitions:

Annual Profit

The net earnings of a company over a one-year period, calculated as revenue minus expenses, taxes, and costs.

Margin of Safety

The difference between actual or expected sales and sales at the break-even point, indicating the risk margin for not reaching profit.

Dollars

The unit of currency used in the United States and other countries, represented by the symbol $.

Degree of Operating Leverage

The Degree of Operating Leverage is a measure that assesses the sensitivity of a company's operating income to changes in its sales volume, indicating the percentage change in operating income for a percentage change in sales.