A firm has an average investment of $10,000 during the year.During the same period,the firm generates after-tax income of $1,000.
If the cost of capital is 15%,what is the net return on the investment?
A)15%
B)-5%
C)10%
D)5%

Question

Quizplus · Accepted Answer

The net return on investment is calculated as (After-tax income - Cost of capital) / Average investment. Here, the cost of capital is 15% of $10,000, which is $1,500. The after-tax income is $1,000. So, the net return is ($1,000 - $1,500) / $10,000 = -5%.

A Firm Has an Average Investment of $10,000 During the Year.During