Managers who are evaluated based on the accounting rate of return model are reluctant to use ________ for capital budgeting decisions.

Question

Quizplus · Accepted Answer

Managers who are evaluated based on accounting rate of return model prefer models that use accounting measures, such as payback period or return on investment. They may be reluctant to use discounted cash flow models, such as net present value or internal rate of return, which require estimating future cash flows and discounting them to present value. Real options model is also based on future uncertainties and may not be preferred by managers who are evaluated based on accounting measures.

Managers Who Are Evaluated Based on the Accounting Rate of Return