The accounting rate of return does not take into account the time value of money.
The accounting rate of return is very different from the internal rate of return. The internal rate of return is the discount rate at which the net present value of an investment is zero. The accounting rate of return does not incorporate present value concepts at all.
The accounting rate of return is not inconsistent with the divisional performance measure known as Return On Investment (ROI). In fact, the accounting rate of return is quite consistent with Return On Investment.
The accounting rate of return uses accrual accounting income, including depreciation, rather than cash flows. It does not take into account the time value of money, and for that reason it is also called the unadjusted rate of return model.
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