When calculating the annual rate of return, the average investment is equal to
A) (initial investment plus $0) divided by 2.
B) initial investment divided by life of project.
C) initial investment divided by 2.
D) (initial investment plus salvage value) divided by 2.

Question

Quizplus · Accepted Answer

The average investment is calculated by taking the sum of the initial investment and the salvage value at the end of the project and dividing it by 2. This is because the investment is assumed to be constant over the life of the project, and the salvage value represents the return of the initial investment at the end of the project. Therefore, choice D is the correct answer.

When Calculating the Annual Rate of Return, the Average Investment