QUESTION $31$

Define each of the following investment rules and discuss any potential shortcomings of each: Average Accounting Return

attainment of target accounting ratio goals.

cash flows that occur after the cutoff point.

value of the project is zero.

QUESTION $32$

Define each of the following investment rules and discuss any potential shortcomings of each: Internal Rate of Return

value of the project is zero. The acceptance and rejection criteria are:

If $C_0<mn\; id="EditorElement\_2557110">0</mn>$ and all future cash flows are positive, accept the project if the internal rate of return is greater than or equal to the discount rate.

If $C_{-}^{-}0<mn\; id="EditorElement\_2556936">0</mn>$ and all future cash flows are positive, reject the project if the internal rate of return is less than the discount rate.

If $C_{-}^{-}0<mn\; id="EditorElement\_2556768">0</mn>$ and all future cash flows are negative, accept the project if the internal rate of return is less than or equal to the discount rate.

If $C_{-}^{-}0<mn\; id="EditorElement\_2556588">0</mn>$ and all future cash flows are negative, reject the project if the internal rate of return is greater than the discount rate.

also may ambiguously rank some mutually exclusive projects. However, for stand$-$alone projects with conventional cash flows, IRR and NPV are interchangeable techniques.

projects and is subject to capital rationing, IRR may provide a good ranking measure of the projects, indicating the "bang for the buck" of each particular project.

total shareholder wealth of the firm will increase by $$2,500$ if the project is accepted.