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What are 3 limitations of ARR? what are 3 limitations of PBP?

What are 3 limitations of ARR?

what are 3 limitations of PBP?

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Answer #1

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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