When two or more capital investment proposals are being evaluated using the accounting rate-of-return method, the proposal that yields the highest ratio of net income to average cost of investment is selected.

Question

Quizplus · Accepted Answer

This statement is true. The accounting rate-of-return method calculates the rate of return on an investment by comparing the net income to the average cost of investment. The proposal with the highest ratio of net income to average cost of investment is generally considered the better investment option.

When Two or More Capital Investment Proposals Are Being Evaluated