2.4.1 - Business calculations (Part B)

Which of the following best describes the main reason why a business might calculate the average rate of return (%) for several proposed long term investments?

• To determine the proportion of revenue left after paying cost of sales

• To help decide which investment to finance

• To determine the proportion of revenue left after paying total costs

• To help decide which investment brings in the most revenue

Which of the following is true in relation to average rate of return? The average rate of return measures the:

• Average annual revenue as a % of the sum invested

• Average annual profit as a % of the sum invested

• Average annual costs as a % of the sum invested

• Average annual sales turnover as a % of the sum invested

Which of the following is an example of an investment that an expanding independent clothing retailer is most likely to choose to finance?

• Buying new office furniture

• Purchasing new vehicles

• Buying personalised stationery

• Opening a new store

Which of the following is the correct formula to calculate average rate of return (%)?

• Average annual profit x 100

  Cost of investment

• Cost of investment x 100

  Average annual profit

• Total profit x 100

  Cost of investment

• Cost of investment x 100

  Total profit

The expected total profit over 4 years of a £26,000 proposed investment is estimated to be £46,000. Based on this information, which of the following is the correct average rate of return (%) for this investment?

• 14.13%

• 44.23%

• 76.92%

• 176.92%

Which of the following is true in relation to the average rate of return?

• It is always expressed as a percentage

• The lower the better

• Zero is the ideal rate

• It is always expressed in pounds (£s)

The table below shows some financial data for a proposed investment:

Based on the above information, which of the following is the correct the average rate of the return (%) for this investment?

• 8%

• 11.11%

• 12.5%

• 14.29%

The cost of a proposed investment of a business is £10,000. The estimated total annual profit over 5 years is £20,000. Based on this information, which of the following is the correct average rate of return (%) for this investment?

• 4%

• 40%

• 50%

• 200%

The average annual profit of a proposed investment is £300,000 and the cost of investment is £1.5 million. Based on this information, which of the following is the correct the average rate of the return (%) for this investment?

• 5%

• 16.67%

• 20%

• 25%

Which of the following is the correct formula to calculate average annual profit?

• Total profit / number of years x 100

• Number of years / total profit x 100

• Total profit / number of years

• Number of years / total profit