The decision technique that measures the estimated performance of a capital investment by dividing the project's annual after-tax income by the average investment cost is called the:
A) Break-even point for the project.
B) Internal rate of return (IRR) on the proposed investment.
C) Accounting (book) rate of return (ARR) on the investment.
D) Capital asset pricing rate of return.
E) Profitability index (PI) for the investment.

Question

Quizplus · Accepted Answer

The technique described is the accounting or book rate of return, which measures the profitability of a project by dividing the annual after-tax income by the average investment cost. This is also known as the accounting rate of return (ARR). The other options are not correct: A is the break-even point, B is the internal rate of return (IRR), D is the capital asset pricing rate of return, and E is the profitability index (PI).

The Decision Technique That Measures the Estimated Performance of a Capital