Which of the following best describes the average rate of return?

The average rate of return is best described as the total return on a project expressed as a percentage of the initial investment. This metric allows businesses to assess the profitability of an investment by calculating the return generated over its lifespan and comparing it directly to the amount initially invested.

When evaluating investment opportunities, the average rate of return provides a straightforward basis for comparing different projects or alternative uses of capital. It gives investors a clear perspective on how effectively the investment is performing relative to its original cost, which can be crucial for decision-making.

In this context, while some of the other options touch upon aspects of investment and financial return, they do not capture the specific relationship between total return and initial investment that defines the average rate of return. For instance, merely dividing total costs by lifespan does not give an indication of profitability relative to the investment made, while annual cash inflow focuses on short-term benefits rather than overall project returns. Profit divided by total expenditure relates more to efficiency and cost management than to the broader measure of return on investment.