How is "return on investment" (ROI) calculated in leasing?

How is "return on investment" (ROI) calculated in leasing?

• A. By analyzing market trends.
• B. By calculating operating expenses.
• C. By dividing net profit by the cost of the investment.
• D. By totaling lease payments over time.

Answer: (C)

The calculation of "return on investment" (ROI) in leasing involves dividing the net profit generated from the investment by the total cost of that investment. This formula provides insight into how effectively the investment is performing relative to its costs, allowing stakeholders to assess whether the leasing agreement is financially viable. Net profit typically includes any income earned from the lease arrangement minus operating expenses and any other costs associated with maintaining or managing the leased asset. In this context, understanding ROI is crucial for stakeholders to make informed decisions about whether to proceed with leasing, as it directly reflects the profitability of the investment. Evaluating ROI helps identify whether the leasing terms are favorable and if they align with financial objectives. The other options relate to different aspects of financial analysis but do not directly pertain to the specific calculation of ROI as defined. Analyzing market trends provides insight into potential future performance, calculating operating expenses focuses on cost management rather than profitability assessment, and totaling lease payments over time gives a view of payments but does not indicate profitability against investment costs.

The calculation of "return on investment" (ROI) in leasing involves dividing the net profit generated from the investment by the total cost of that investment. This formula provides insight into how effectively the investment is performing relative to its costs, allowing stakeholders to assess whether the leasing agreement is financially viable. Net profit typically includes any income earned from the lease arrangement minus operating expenses and any other costs associated with maintaining or managing the leased asset.

In this context, understanding ROI is crucial for stakeholders to make informed decisions about whether to proceed with leasing, as it directly reflects the profitability of the investment. Evaluating ROI helps identify whether the leasing terms are favorable and if they align with financial objectives.

The other options relate to different aspects of financial analysis but do not directly pertain to the specific calculation of ROI as defined. Analyzing market trends provides insight into potential future performance, calculating operating expenses focuses on cost management rather than profitability assessment, and totaling lease payments over time gives a view of payments but does not indicate profitability against investment costs.