The accrual accounting rate of return is the method of capital budgeting that is based most closely on the information in the financial statements.

Question

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The accrual accounting rate of return (AARR) uses information from the financial statements, specifically the average net income and average book value of assets, to calculate the rate of return for a project. Other methods of capital budgeting, such as the payback period and net present value, do not rely solely on financial statement information.

The Accrual Accounting Rate of Return Is the Method of Capital