Question

Given beginning-of-year assets of $187,000, and end-of-year assets of $202,000, ROI should be calculated based on assets of ______.

Option 1: $187,000
Option 2: $202,000
Option 3: ($187,000 + $202,000) / 2
Option 4: $0 (zero)

Answer 1

ROI should be calculated based on the average of the beginning-of-year assets and end-of-year assets, which is ($187,000 + $202,000) / 2.

Step-by-step explanation:

When calculating Return on Investment (ROI), it is important to consider the base on which the return is computed. The appropriate base for such a calculation would generally be the average of the beginning and ending asset values for the period in question if the assets are expected to have contributed evenly to generating the return throughout the year.

Therefore, ROI should be calculated based on the average of the beginning-of-year assets and end-of-year assets: Option 3: ($187,000 + $202,000) / 2.