Answer (A) is correct . If taxes are ignored, depreciation is not a consideration in any of the methods based on cash flows because it is a non-cash expense. Thus, the internal rate of return, net present value, and payback methods would not consider depreciation because these methods are based on cash flows. However, the accounting rate of return is based on net income as calculated on an income statement. Because depreciation is included in the determination of accrual accounting net income, it would affect the calculation of the accounting rate of return.
Answer (B) is incorrect because The IRR and the payback period are based on cash flows. Depreciation is not needed in their calculation. However, the accounting rate of return cannot be calculated without first deducting depreciation.
Answer (C) is incorrect because The IRR and the payback period are based on cash flows. Depreciation is not needed in their calculation. However, the accounting rate of return cannot be calculated without first deducting depreciation.
Answer (D) is incorrect because The IRR and the payback period are based on cash flows. Depreciation is not needed in their calculation. However, the accounting rate of return cannot be calculated without first deducting depreciation.
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