Which of the following statements about the accounting rate of return method is/are correct?
i. It is a simple way of screening investment proposals.
ii. It is used by some managers because they believe this method parallels financial accounting statements.
iii. It is more accurate than the payback method because it considers the time value of money.

Question

Quizplus · Accepted Answer

i. The accounting rate of return method is a simple way to screen investment proposals based on their average profits over their useful lives.
ii. Some managers use this method because they are familiar with financial accounting statements and find it easier to compare projects using this method.
The third statement is incorrect because the accounting rate of return method does not consider the time value of money.

Which of the Following Statements About the Accounting Rate of Return