Answer (B) is correct . The accounting rate of return (also called the unadjusted rate of return or book value rate of return) is calculated by dividing the increase in accounting net income by the required investment. Sometimes the denominator is the average investment rather than the initial investment. This method ignores the time value of money and focuses on income as opposed to cash flows.
Answer (A) is incorrect because The IRR is the rate at which the net present value is zero. Thus, it incorporates time value of money concepts, whereas the accounting rate of return does not.
Answer (C) is incorrect because The accounting rate of return is similar to the divisional performance measure of return on investment.
Answer (D) is incorrect because The accounting rate of return ignores the time value of money.
|
