Which financial analysis term or technique identifies if an investment is of benefit to the company?

Question

Options

• ATotal Cost of Ownership (TCO)
• BCapital Expense (CAPEX)
• COperating Expense (OPEX)
• DReturn on Investment (ROI)
• EWeighted Average Cost of Capital (WACC)

• C
  4% (2)
• D
  93% (42)
• E
  2% (1)

Explanation

Return on Investment (ROI) is the correct answer because it directly measures whether an investment generates more value than it costs - expressed as a percentage gain or loss relative to the investment, it tells decision-makers if a project is financially worthwhile.

The distractors fail because they measure costs, not benefit: TCO (A) calculates the full lifecycle cost of ownership but says nothing about whether that cost produces a net gain; CAPEX (B) and OPEX (C) are simply accounting classifications for how expenses are recorded (long-term assets vs. ongoing operations), not evaluation techniques; WACC (E) represents the company's blended cost of financing and is used as a benchmark discount rate, not a direct measure of an investment's benefit.

Memory tip: ROI has the word "Return" in it - focus on what comes back. Any time the question asks about benefit, gain, or worthiness of an investment, the answer is the one with "Return."

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