How is the yield on costs calculated?

The correct calculation of yield on costs is determined by taking the net operating income and dividing it by the total project costs. This ratio measures the profitability of a real estate investment relative to its costs. By using net operating income, which reflects the income generated from a property after deducting operating expenses, and comparing it to the total costs incurred in the project, investors can gain insights into the return on their investment. A higher yield on costs indicates a more profitable investment, essential for making informed decisions in real estate projects.

The other options do not relate directly to computing yield on costs. For example, net income divided by total revenue gives the profit margin, which is a different financial metric, while cash flow divided by operating expenses relates more to the efficiency of the business operations, and total assets divided by total liabilities results in the debt-to-assets ratio, which measures financial leverage, not project yield.