1) Which of the following is not a limitation of using the accounting rate of return method for capital budgeting?

A) The accounting rate of return method is based on accounting income, rather than cash flow.

B) The accounting rate of return method is subject to potential manipulation based on accounting choices made by management (e.g., the method used to depreciate a capital asset).

C) The accounting rate of return method does not incorporate time value of money.

D) Net incomeon which the accounting rate of return method is basedis more objective than cash flow.

2) The accounting rate of return is also called all of the following EXCEPT:

A) annual rate of return.

B) required rate of return.

C) simple rate of return.

D) unadjusted rate of return.

3) Which of the following statement regarding the payback method is INCORRECT?

A) In general, projects with longer payback periods are safer investments than those with shorter payback periods.

B) When cash flows are equal each year, the payback period is calculated by dividing the initial investment in the project by its annual cash flow.

C) The payback method is often used as a screening tool for potential investments.

D) The payback period is the amount of time it takes for a capital investment to "pay for itself."