Average
Average rate of return is a method that measures the average earnings of a particular business, as a percentage of the average investment. It is also known as accounting rate of return.
Calculation of Average rate of return:
Internal rate of return method is one of the capital investment methods which determine the rate of return, wherein the
The reasons for the difference between the average rate of return and the internal rate of return on the same project.
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Chapter 25 Solutions
Financial & Managerial Accounting
- How does the size of the initial investment affect the internal rate of return on the net present value models?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_forwardHow can we measure the true rate of return of any internal portion of an investment project?arrow_forward
- What 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_forwardHow 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_forwardWhich provides a better estimate of a project’s “true” rate of return, the MIRR or theregular IRR? Explain.arrow_forward
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