alleryStart learning →What is the main advantage of the ARR method?
AIt is easy to compute and understand
BIt discounts all future profits
CIt is based on cash flows
DIt adjusts for project risk
Answer & Solution
Correct answer: A. It is easy to compute and understand
ARR needs only accounting profit and book value figures, which makes it simple to calculate and explain.
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Related questions
Which measures do economists prefer over payback for return?Rs 9,00,000 is invested and net cash flow is Rs 1,80,000 a year. Payback?A: profit Rs 40,000 on average investment Rs 2,00,000. B: Rs 54,000 on Rs 3,60,000. HigherCost Rs 12,00,000 and scrap Rs 2,00,000. Average investment under ARR?Cost Rs 3,00,000, scrap Rs 60,000, 4 years, total profit Rs 1,44,000. ARR?Which goal underlies capital budgeting in corporate finance?Capital budgeting mainly concerns which type of spending?Companies create value when their return on capital is above what?