Answer (B) is correct . The accounting rate of return uses undiscounted net income (not cash flows) to determine a rate of profitability. Annual after-tax net income is divided by the average carrying amount (or the initial value) of the investment in assets.
Answer (A) is incorrect because The internal rate of return is the rate at which NPV is zero. The minimum desired rate of return is not used in the discounting.
Answer (C) is incorrect because The payback period is the time required to complete the return of the original investment. This method gives no consideration to the time value of money or to returns after the payback period.
Answer (D) is incorrect because The NPV method computes the discounted present value of future cash inflows to determine whether it is greater than the initial cash outflow.
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