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Answer A:
Accounting rate of return: The merits of the accounting rate of return (ARR) method are that the method is relatively simple to use and easy to understand. It considers the profitability of the projects under consideration. The limitations of the ARR method include ignoring cash flows and the time value of money.
Internal rate of return: The merits of the internal rate of return (IRR) method are that it considers the time value of money and measures the true economic return of the project and productivity of the capital invested in the project. The limitations of the IRR method are that the answer is stated as a percentage rather than a dollar amount, making it more difficult to understand and explain to management. The IRR method also unrealistically assumes that cash flows are reinvested at the IRR of the project.
Net present value method: The merits of the net present value (NPV) method are that it considers the time value of money and size of the investment. The NPV method measures the true economic return of the project, the productivity of the capital investment, and the change in the organization's shareholders' wealth. The limitations of the NPV method include the assumption that all cash flows are reinvested at the discount (hurdle) rate, and it does not calculate a project's rate of return.
Payback method: The merits of the payback method are that it considers cash flows and provides a measure of the liquidity and risk of the investment. The limitations of the payback method are that it neglects the time value of money and the project's profitability.
Answer B:
Miranda Wells and Jake Richter are basing their judgment on the results of the net present value and internal rate of return calculations. These are both considered better measures because they include cash flows, the time value of money, and the project's profitability. Project B is better than Project A for both of these measures.
Answer C:
At least three qualitative considerations that should generally be considered in capital budget evaluations include the following.
 Quicker response to market changes and flexibility in production capacity.
 Strategic fit and long-term competitive improvements from the project, or the negative impact to the company's competitiveness or image if it does not make the investment.