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Managerial Accounting: The Corners...
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Managerial Accounting: The Corners...
The ARR has one specific advantage not possessed by the payback period in that it
- a. considers the time value of money.
- b. measures the value added by a project.
- c. is always an accurate measure of profitability.
- d. is more widely accepted by financial managers.
- e. considers the profitability of a project beyond the payback period.
Identify the advantage of ARR which is not possessed by payback method.
Accounting Rate of Return:
A method that measures returns from an investment in terms of income instead of cash flow is known as accounting rate of return. It is a non-discounting model of capital investment decision.
e.
ARR is more accurate than payback period because it considers the income from a project beyond the payback period. ARR focuses on profitability that is not considered by payback period. Therefore, option e is the correct answer.
a.
ARR is a non-discounting method, which does not consider the time value of money...
Chapter 12 Solutions
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