Without using formulas, provide a deﬁnition of average accounting return (AAR).
A) A project analysis tool that measures the acceptability of a project by determining the amount of proﬁt that can be expected based on an investment made.
B) A project analysis tool that measures the acceptability of a project through the difference between a project's initial investment and whether the present value of its cash ﬂow will
Repay the investment.
C) A project analysis tool that measures the acceptability of a project by determining the length of time required for an investment's discounted cash ﬂows to equal its initial cost.
D) A project analysis tool that determines the amount of time required for an investment to generate cash ﬂows to recover its initial cost.
E) A ranking method used to assess projects. PI greater than 1 signify positive NPV projects, while PI less than 1 signify negative NPV projects.

Question

Quizplus · Accepted Answer

Average accounting return (AAR) is a project analysis tool that measures the acceptability of a project by determining the amount of profit that can be expected based on an investment made. AAR is calculated as the average net income expected from the project divided by the initial investment. It does not involve the time value of money and is a simple method for evaluating projects.

Without Using Formulas, Provide a Deﬁnition of Average Accounting Return