Question

1. Which one of the following correctly defines the average accounting return?

            a. average cash inflow divided by average book value

            b. average book value divided by average cash inflow

            c. average book value divided by average discounted cash flow

            d. average book value divided by average net income

2. The president of a firm is most concerned with creating value for the firm’s shareholders.    Given this concern, the best method he or she should use to evaluate all proposed projects is:

            a. the accounting rate of return.

            b. payback.

            c. net present value.

            d. profitability index.

multiple choice

Answer 1

Question 1

option A

average cash inflow divided by average book value

Average operating profits before interest and taxes but after depreciation dividived by the book value of the average amount invested is the average accounting return and it is expressed in percentage

Question 2

Option A

. the accounting rate of return.

in accounting rate of return = net profit / initial investment is considered and the net profit is available to the share holders, this percentage return will show a better position of the company to the share holders.