Advantages And Disadvantages Of Internal Rate Of Return Method ~ ABC News

Solution for Which of the following is not an advantage of the average rate of return method? a.includes the amount of income earned over the entire life of…Question: Which Of The Following Is Not An Advantage Of The Average Rate Of Return Method? A. It Includes The Amount Of Income Earned Over The Entire Life Of The Proposal. B. It Emphasizes Accounting Income. C. It Is Easy To Use. D.Accounting Rate of Return, shortly referred to as ARR, is the percentage of average accounting profit earned from an investment in comparison with the average accounting value of investment over the period. Accounting Rate of Return is also known as the Average Accounting Return (AAR) and Return on Investment (ROI).The primary weakness of the average return method of selecting alternative uses of funds is that the time value of funds is ignored. 3. A fair rate of return can not be determined on the basis of ARR. It is the discretion of the management. 4. This method does not consider the external factors which are also affecting the profitability of theAdvantages: Accounting rate of return is simple and straightforward to compute. It focuses on accounting net operating income. Creditors and investors use accounting net operating income to evaluate the performance of management. Disadvantages: Accounting rate of return method does not take into account the time value of money.

Solved: Which Of The Following Is Not An Advantage Of The

average rate of return method. Which of the following is not an advantage of the average rate of return method? takes into consideration the time value of money. Which of the following is an advantage of the cash payback method? easy to use. The production department is proposing the purchase of an automatic insertion machine. It has identifiedTime Value of Money. The first and the most important thing is that the internal rate of return considers the time value of money when evaluating a project. This is a huge downfall in the accounting rate of return, an average rate of return and Pay Back period. One can measure IRR by calculating the interest rate at which the PV of future cash flows is equal to the capital investment required.Which of the following is not an advantage of the average rate of return method? a. It includes the amount of income earned over the entire life of the proposal. b. It emphasizes accounting income. c.The main disadvantage of average rate of return method (accounting rate of return method) is that it does not directly consider the expected cash flows from the proposal and the timing of the cash flows. The cash flows and its timing is very important because cash coming from investment can be reinvested in other income generating activities.

Accounting Rate Of Return (ARR) | Accounting Simplified

Average investment = (Opening investment + Closing investment)/2. Therefore it does not consider the accounting income, it takes into consideration, it considers total return from each particular investment. Thus emphasizing on accounting income is not an advantage of average rate of return method.Problems with the Simple Rate of Return. While this method has the advantage of being simple and easy to calculate, it also suffers from several problems, which are: Time value of money. The method does not use discounting to reduce the incremental amount of net income to its present value. Instead, it assumes that any net income earned duringDemonstration of the Accounting Rate of Return Method. Returning to the BGM example, the company is still considering the metal press machine because it passed the payback period method of less than 7 years. BGM has a set rate of return of 25% expected for the metal press machine investment.Average rate of return method. The method of analyzing capital investment proposals that divides the estimated average annual income by the average investment is. It emphasizes the amount of income earned over the life of the proposal. The primary advantages of the average rate of return method are its ease of computation and the fact that:A project costs £29,000 and is expected to have a useful life of three years at which point its scrap value will be £5,000. The project is expected to yield net profits of £1,000 per annum over its useful life. Using the average book value of the asset the accounting rate of return will be:

Question:

Which of the following is not an advantage of the average rate of return method?

a. It comprises the amount of income earned over the complete life of the proposal.

b. It emphasizes accounting income.

c. It is simple to use.

d. It takes under consideration the time worth of cash.

Average Rate of Return Method

The average rate of return method (AAR) is a financial ratio that calculates the return generated from internet income of a proposed capital funding. AAR is offered as a percentage return and is frequently used for capital budgeting. AAR does not account for investment risk however helps resolve the attractiveness of a possible investment.