Question

Since the average accounting return (AAR) method of project analysis _____________, it is considered as the...

Since the average accounting return (AAR) method of project analysis _____________, it is considered as the method's strength.

  • ignores the issue of taxes

  • uses a cutoff rate

  • considers the time value of money

  • is easy to calculate

  • is based on accounting values

Pick the correct statement related to average accounting rate of return (AAR) from below.

  • The average accounting rate of return considers the time value of money.

  • The average accounting rate of return measures net income as a percentage of the sales generated by a project.

  • The average accounting rate of return is the best method of financially analyzing mutually exclusive projects.

  • The average accounting rate of return is the primary methodology used in analyzing independent projects.

  • The average accounting rate of return is similar to the return on assets ratio.

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Answer #1

The answer is

· is easy to calculate

Average Accounting return = Average Annual Profit/Investment

Hence it is very simple to calculate and a strength

It does not take into · The average accounting rate of return is similar to the return on assets ratio.

It does not account time value of money

The correct statement is

· The average accounting rate of return is similar to the return on assets ratio.

Average Accounting return = Average Annual Profit/Investment

Return on Assets = Net Income/Total Assets

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