What are 3 limitations of ARR?
what are 3 limitations of PBP?
Limitations of ARR Accounting rate of return
Unlike other methids, ARR is based on the method of profit , rather than cashflows of the company
It is also affected by non cash items , like depreciation
ARR also fails to consider the time value of money
Limitations of PBP Payback Period
Ignores Time value of money , which is the most important factor in finance and accounting
Does not consider projesct's profitability
Also ignoress project's rate of investment
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