ARR A

Which of the following statements describes the accounting rate of return (ARR)?

• A) It is the ratio of net income to total assets.
• B) It is the ratio of net income to average investment.
• C) It is the ratio of cash inflows to cash outflows.
• D) It is the ratio of dividends to shareholders' equity.

The accounting rate of return (ARR) is used to measure:

• A) The profitability of an investment project.
• B) The liquidity of a company.
• C) The market value of a stock.
• D) The creditworthiness of a customer.

The accounting rate of return (ARR) is calculated by dividing:

• A) Initial investment by the number of years.
• B) Net present value by the internal rate of return.
• C) Average net income by the cost of capital.
• D) Average net income by the average investment.

Which of the following factors is not considered when using the accounting rate of return (ARR) method for investment appraisal?

• A) Initial investment cost.
• B) Expected cash inflows.
• C) Salvage value.
• D) Time value of money.

The accounting rate of return (ARR) is expressed as a:

• A) Percentage.
• B) Dollar amount.
• C) Ratio.
• D) Time period.

The accounting rate of return (ARR) does not consider:

• A) Cash flows over the entire project's life.
• B) The timing of cash flows.
• C) The profitability of the investment.
• D) The initial investment cost.

Which of the following is a limitation of the accounting rate of return (ARR) method?

• A) It is difficult to calculate.
• B) It ignores the time value of money.
• C) It requires complex financial models.
• D) It considers all cash flows.

The accounting rate of return (ARR) is primarily used for:

• A) Assessing the profitability of an investment.
• B) Determining the payback period.
• C) Evaluating market conditions.
• D) Estimating future cash flows.