Which one of the following correctly applies to the average accounting rate of return?
A)It considers the time value of money.
B)It measures net income as a percentage of the sales generated by a project.
C)It is the best method of analyzing mutually exclusive projects from a financial point of view.
D)It is the primary methodology used in analyzing independent projects.
E)It can be compared to the return on assets ratio.

Question

Quizplus · Accepted Answer

The average accounting rate of return (AARR) compares the average annual profit of an investment to the initial or average investment cost. This method is similar to the return on assets ratio, which also compares net income to the total assets to assess a company's efficiency in using its assets to generate earnings.

Which One of the Following Correctly Applies to the Average