Q1: The best criterion for analysing an economic investment is the

ANS:A - rate of return criterion.

The rate of return criterion is a method used to evaluate the profitability of an investment by comparing the returns generated by the investment to the costs incurred. It is essentially a measure of the efficiency of an investment in generating profits relative to the resources invested. Here's how the rate of return criterion typically works:

1. Calculation of Returns: The first step is to calculate the returns generated by the investment over a specified period. Returns can be in the form of income, such as dividends or interest, and capital gains or losses resulting from changes in the value of the investment.
2. Calculation of Costs: Next, the costs associated with the investment are calculated. These costs may include initial investment outlays, ongoing expenses, and any other costs incurred in the process of acquiring and maintaining the investment.
3. Calculation of Rate of Return: The rate of return is then calculated by dividing the total returns generated by the investment by the total costs incurred. This calculation provides a percentage or ratio that indicates the efficiency of the investment in generating returns relative to the resources invested.
4. Comparison to Required Rate of Return: The calculated rate of return is compared to the investor's required rate of return or minimum acceptable rate of return. The required rate of return represents the minimum return that investors expect to earn given the risk associated with the investment. If the calculated rate of return is higher than the required rate of return, the investment is considered acceptable. If it is lower, the investment may be deemed unfavorable.

The rate of return criterion provides a simple and intuitive way to assess the profitability of an investment. It allows investors to compare the returns generated by different investment opportunities and make informed decisions based on their return expectations and risk tolerance. However, it's important to note that the rate of return criterion has limitations. For example, it does not take into account the timing of cash flows, the time value of money, or the risk associated with the investment. Therefore, while the rate of return criterion is a useful tool for initial assessment, it is often supplemented with more comprehensive methods such as discounted cash flow analysis for a more thorough evaluation of investment opportunities.