Profit Before Finance Costs Is Used in Calculating Return on Total

question 5

Multiple Choice

Profit before finance costs is used in calculating return on total assets because:

• A) interest rates are hard to predict.
• B) it is simpler to calculate than profit after deducting finance costs.
• C) the efficient use of resources should be examined independently of the method of financing.
• D) interest is a tax deduction for a company.

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Definitions:

Profit-volume Chart

A Profit-Volume Chart is a graphical representation that shows the relationship between a firm's profits and its volume of sales, illustrating the impact of different sales levels on profits.

Total Sales Revenues

The total income received by a company from its sales of goods or services, before any expenses are subtracted.

Total Costs

The complete sum of expenses incurred by a company in producing goods or services, including fixed, variable, and semi-variable costs.

Margin Of Safety

The difference between actual or expected sales and the breakeven sales, indicating how much sales can decrease before a company incurs a loss.