The difference between the ARR and NPV methods is the timing of the various ____________ cash flows. In other words, if the __________ increases, the project becomes increasingly more attractive.

Question

Quizplus · Accepted Answer

The blank should be filled with "expected" as the ARR (average accounting rate of return) method focuses on the expected cash inflows and outflows over the life of the project, while the NPV (net present value) method discounts the cash flows back to their present value at the required rate of return. Therefore, the timing of the cash flows is different between the two methods. As for the second blank, it should be filled with "ARR" as an increase in the expected accounting rate of return makes the project more attractive according to the ARR method.

The Difference Between the ARR and NPV Methods Is the Timing