Consider the following statements about the accounting rate of return:
I. The accounting rate of return focuses on a project's income rather than its cash flows.
II. Companies can figure the accounting rate of return on either the initial investment figure or an average investment figure.
III. The accounting rate of return considers the time value of money.
Which of the above statements is (are) correct?

Question

Quizplus · Accepted Answer

The accounting rate of return (ARR) indeed focuses on a project's income rather than its cash flows and can be calculated using either the initial investment or an average investment figure. However, it does not consider the time value of money, which differentiates it from other investment appraisal techniques like NPV or IRR.

Consider the Following Statements About the Accounting Rate of Return