Which feature distinguishes the accounting rate of return method from discounted cash flow methods in investment appraisal?
Correct answer: D. It uses accounting profit rather than cash flow
- A. It measures only the project's payback period
- B. It always includes the time value of money
- C. It discounts all cash flows at the cost of debt
- D. It uses accounting profit rather than cash flow
Explanation
The accounting rate of return uses accounting profit and an accounting measure of investment. Unlike NPV and IRR, it normally does not adjust returns for the time value of money.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
Practise Business Finance
975 free Business Finance MCQs from Management Sciences, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Management Sciences questions like this
Management Sciences is on 2 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Business Finance questions
A company earns profit after tax of Rs. 800,000 and pays ordinary dividends of Rs. 200,000. What is its dividend payout ratio?
Which statement best describes a finance lease from the lessee's perspective?
A firm's inventory conversion period is 45 days, its receivables collection period is 30 days, and its payables payment period is 20 days. What is its cash conversion cycle?
Under the Modigliani and Miller proposition for capital structure in a perfect market without taxes or bankruptcy costs, the value of a firm is primarily determined by its:
What is the main purpose of a flexible budget?
A preference share pays an annual dividend of Rs. 12 and currently sells for Rs. 100. Ignoring issue costs, what is the cost of preference shares?