The economic rate of return on an asset is defined as A)[(C1 + PV₁ - PV₀)]/(PV₀). B)[(C1 - (PV₁ - PV₀)]/(PV₀). C)[(C1 + PV₁)]/(PV₀). D)[(C1 + PV₀)]/(PV₁).

Question

Quizplus · Accepted Answer

The economic rate of return is calculated by taking the present value of the cash inflows (C1) plus the present value of the salvage value (PV of S1) minus the initial investment (PV of U1B1) divided by the initial investment (PV of U1B0). Option A correctly represents this formula.

The Economic Rate of Return on an Asset Is Defined