Concept Introduction:
ARR:
Accounting
The formula to calculate ARR is as follows:
Hence, higher the ARR better it is. A project with the Higher ARR is chosen first in the capital rationing process.
IRR:
To Indicate:
The difference between the Average rate or return and internal rate of return
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Chapter 15 Solutions
Survey of Accounting (Accounting I)
- How does the size of the initial investment affect the internal rate of return on the net present value models?arrow_forwardWhat are the principal objections to the use of the average rate of return method in evaluating capital investment proposals?arrow_forwardDetermine the internal rate of return of a project?arrow_forward
- How can we use the internal rate of return to evaluate whether we should pursue a specific project? Should we pursue a project when the cost of capital is higher than the internal rate of return?arrow_forwardWhat are the shortcomings of the internal rate of return criterion? How do you make an investment decision based on the IRR? How would the NPV of the same project look?arrow_forwardWhy are NPV, BCR, and IRR considered SUPERIOR indicators of Project Feasibility compared to Payback or Recoupment Period and Accounting Rates of Return? Explain briefly.arrow_forward
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