The capital budgeting technique known as accounting rate of return uses

Question

Quizplus · Accepted Answer

The accounting rate of return (ARR) method uses accounting data to calculate the average return on investment, which is then compared to a target rate of return or hurdle rate to determine if the project is acceptable. Therefore, it is a capital budgeting technique that uses accounting information, making option C and option B incorrect. However, ARR does not consider the time value of money, which is a major drawback, making option A incorrect. Hence, option D is the correct answer since it is the only option that accurately reflects both the use and limitation of the ARR method.

The Capital Budgeting Technique Known as Accounting Rate of Return