The Npv Rule Is the Best Investment Appraisal Method
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Accounting rate of return
The accounting rate of return (ARR) is a simple measure sometimes used in investment appraisal. It is a form of return on capital employed. ARR is calculated in the following way:
ARR= average accounting profit over the project x 100% Initial investment
We here see that ARR is based on profits rather than cash flows and that it ignores the time value of money. It therefore just gives a brief overview of a new project, and should not be recommended as a primary investment appraisal method. As said earlier the impact of cash flows and the time value of money are essential in making an investment decision. Another disadvantage of the ARR is the fact it is dependent on the depreciation policy adopted by the business.
Internal Rate of

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