Certified Paraoptometric (CPO) Practice Exam 2024

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What does 'Return on Investment (ROI)' measure?

The total expenses incurred for a project
A measurement of success of a project; the percent of profit earned on an investment
The average lifespan of an investment
The amount necessary to invest in order to start a project

The correct answer is: A measurement of success of a project; the percent of profit earned on an investment

Return on Investment (ROI) is a key financial metric used to evaluate the profitability of an investment and is specifically defined as the percentage of profit earned relative to the initial amount invested. It helps in assessing the efficiency and success of an investment, making it easier for businesses to compare different investment opportunities. A higher ROI indicates a more profitable investment, whereas a lower ROI suggests that the investment may not be as effective. The other options do not define ROI accurately. The total expenses incurred for a project simply account for the costs and do not reflect the overall profitability. The average lifespan of an investment does not relate directly to its effectiveness in generating profit. Lastly, the amount necessary to invest to start a project provides no insight into the eventual return or success of that investment. These aspects focus on cost or duration rather than profitability.