The correct term for a project's average net income divided by its average book value is the 'accounting return,' also known as return on investment or return on assets, reflecting actual profitability after the fact.
- A project's average net income divided by its average book value is referred to as the project's accounting return.
- The accounting return is also known as the return on investment (ROI) or the return on assets (ROA).
- It is the ratio that represents the profitability of an investment relative to its cost.
- The expected rate of return is a crucial concept in finance, referring to the potential profit an investor might receive from an investment, whether it be through interest, dividends, or capital gains.
- The accounting return, however, is a backward-looking metric, reflecting the actual profitability of a project after it has occurred based on the investment's book value rather than its market value or the cost of capital.
Question:
A project average net income divided by its average book value is referred to as the projects average:
Net present value
Internal rate of return
Accounting return
Profitability index
Payback period