Question

The Average Accounting Return (AAR) Rule states that a company will accept a project that has an average account return that:________
A) exceeds a pre-determined target average accounting return.
B) is less than a pre-determined target average accounting return.
C) exceeds the net present value for the company.
D) is less than the net present value for the company.
E) is equal to the increase of the net income over the past year.

Answer 1

Answer:

A) exceeds a pre-determined target average accounting return.

Explanation:

accounting rate of return/ ARR is used to evaluate capital budgeting decisions and it ignores time value of money.

if ARR is equal to or greater than the required rate of return, then the project should be accepted.