Accounting Rate of Return

The accounting rate of return (ARR) is the second commonly used nondiscounting model. The accounting rate of return measures the return on a project in terms of income, as opposed to using a project's cash flow. It is computed by the following formula:

Accounting rate of return = Average income/Original investment

Income is not equivalent to cash flows because of accruals and deferrals used in its computation. Average income is computed by - Select your answer -summing annual income over the life of the projectcash flows over the life of the projectItem 1 and then dividing by the number of years of the project. Annual income is approximated as - Select your answer -annual cash flow less annual depreciation expenseannual cash flow plus depreciation expenseItem 2 . Average income for a project also can be approximated by - Select your answer -adding average depreciation to average cash flowsubtracting average depreciation from average cash flowItem 3 . Unlike the payback period, ARR considers - Select your answer -the time value of moneythe profitability of a projectItem 4 . Both the payback period and the ARR - Select your answer -considerignoreItem 5 the time value of money.

NO FORMULA NEEDED.....ITS MULTIPLE CHOICE QUESTIONS!!!