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3.3 Keywords - Effective Financial Management

Mr_Lambert_Hungerhil

Accounting Rate of Return

Description

Financial Management Quiz on Accounting Rate of Return, created by nadz_k on 04/05/2013.

Quiz by nadz_k, updated more than 1 year ago

	Created by nadz_k about 12 years ago

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Resource summary

Question 1

Question

What is the accounting rate of return?

Answer

the rate of return given at the end of the accounting period
the ratio of the accounting profit to the investment in the project

Question 2

Question

What is the formula?

Answer

Profit / Income X 100
Profit for the year / Asset book value at the start of the year X 100

Question 3

Question

What are the limitations of the accounting rate of return?

Answer

It is the most favored method for investment appraisal
Fails to take in to account the time value of money
Profit figures are poor substitutes of cash flow
The number of alternative ARR calculations can be continued beyond the three possibilities
This method is more accurate and reliable in comparison to NPV

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