The average accounting return:
A) Reﬂects the projected net effect of the cash ﬂows from a project on the overall ﬁrm.
B) Is comparable to the return on assets and thus provides a similar measure of performance.
C) Reﬂects the anticipated net impact of a project on the shareholders of the ﬁrm.
D) Rule, when applied, guarantees that only projects that increase shareholder wealth will be accepted.
E) Ignores all income produced by a project after an arbitrarily assigned cutoff point.

Question

Quizplus · Accepted Answer

The average accounting return (AAR) is similar to the return on assets (ROA) as it measures the average profitability of an investment relative to its cost, providing a performance measure.

The Average Accounting Return