Question

How will increases in the following items affect return on investment (ROI)? (Increase in Expenses = IE, Increase in Inventory = II)

A. IE = Decrease ROI, II = Decrease ROI
B. IE = Decrease ROI, II = Increase ROI
C. IE = Increase ROI, II = Decrease ROI
D. IE = Increase ROI, II = Increase ROI
A. Option A
B. Option B
C. Option C
D. Option D

Answer 1

An increase in expenses and inventory will decrease the return on investment (ROI).

Step-by-step explanation:

When it comes to return on investment (ROI), an increase in expenses (IE) and an increase in inventory (II) have different effects:

1. An increase in expenses (IE) will decrease ROI. Higher expenses means lower profits, which in turn reduces ROI.

2. An increase in inventory (II) will decrease ROI as well. Holding more inventory ties up the company's capital, reducing the opportunity to invest in other areas that may provide a higher return.

Therefore, the option that best describes the effect of these increases on ROI is Option A, where IE = Decrease ROI and II = Decrease ROI.