Why Is Interest Added Back to Profit Before Tax When

question 63

Multiple Choice

Why is interest added back to profit before tax when calculating the rate of return on total assets?

• A) To reflect the fact that the efficient use of resources should be examined independently from the method of financing.
• B) Because it must be paid regardless of profits.
• C) Because interest rates are variable over time.
• D) To indicate to lenders that some risk is involved.

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Definitions:

Reinforcement

In behavioral psychology, a principle that strengthens a behavior by providing a consequence an individual finds rewarding.

Frequency

The rate at which a repeated event occurs over a specified period of time, often used in the context of waves or signals.

Negative Reinforcement

A technique used to increase the likelihood of a desired behavior by removing an unpleasant stimulus when the behavior occurs.

Positive Reinforcement

The process of encouraging a desired behavior by rewarding it, thereby increasing the likelihood of its recurrence.