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Item $7$

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Learning Objective $24-$P$2$: Compute accounting rate of return and explain its use.

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A project$$s accounting rate of return is computed by dividing the investment's annual income by the average investment. The average investment is computed as the $($investment$$s initial investment plus its salvage value$)$ divided by $2.$

Evaluating Accounting Rate of Return

$-0$:$13$

$1$x

Knowledge Check $01$

All of the following are weaknesses of the accounting rate of return except:

multiple choice

it is easy to compute.

it does not directly consider cash flows.

it ignores the time value of money.

it does not directly consider timing of cash flows.