If a firm is experiencing no capital rationing,it should accept all investment proposals whose accounting rate of return is equal to or greater than the weighted average cost of capital.

Question

Quizplus · Accepted Answer

The decision to accept investment proposals should be based on whether the proposals have a positive net present value (NPV) or an internal rate of return (IRR) higher than the weighted average cost of capital (WACC), not solely on the accounting rate of return (ARR), which does not consider the time value of money or the project's risk compared to the firm's WACC.

If a Firm Is Experiencing No Capital Rationing,it Should Accept