A. The accounting rate of return is the average annual increased accounting net income after tax attributable to the investment divided by the net initial investment, or sometimes divided by the average investment over the life of the project (i.e., the initial investment amount divided by 2). The accounting rate of return does not take into consideration the time value of money.
B. The discounted payback method does take into consideration the time value of money, because it is calculated using discounted cash flows.
C. The internal rate of return is the discount rate at which the net present value of an investment project is zero. Therefore, it does take into consideration the time value of money.
D. Net present value does take into consideration the time value of money, because it equals the present value of future cash inflows minus the net initial investment.
