The accounting rate of return does not consider:

Question

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The accounting rate of return is a simple method for evaluating the profitability of an investment project, which is calculated by dividing the average annual profit by the initial investment cost. However, it does not consider the time value of money, which means that it assumes that a dollar earned in the future has the same value as a dollar earned today. This is a significant limitation because the value of money changes over time due to inflation, changes in interest rates, and other factors. Therefore, the accounting rate of return may not provide an accurate measure of the true profitability of an investment project.

The Accounting Rate of Return Does Not Consider