The decision rule for the accounting rate of return method of assessing investment projects is to accept all projects with:

Question

Quizplus · Accepted Answer

The accounting rate of return method is based on calculating the average annual net income of the investment project as a percentage of the initial investment. The decision rule for this method is to accept all projects with a return that meets or exceeds a predetermined minimum required return, also known as the hurdle rate or the cost of capital. Therefore, the correct answer is C, which states that the decision rule is to accept projects with the highest return subject to a minimum required return, as this ensures that the investment will generate enough profit to cover the cost of capital and create value for the company. Choices A and B are incorrect, as they do not account for the required return, and may lead to accepting projects that do not meet their financial objectives or reduce the overall profitability of the company.

The Decision Rule for the Accounting Rate of Return Method