Asked by Maame Ocran on Apr 27, 2024
Verified
The primary advantages of the average rate of return method are its ease of computation and the fact that
A) it is especially useful to managers whose primary concern is liquidity
B) there is less possibility of loss from changes in economic conditions and obsolescence when the commitment is short term
C) it emphasizes the amount of income earned over the life of the proposal
D) rankings of proposals are necessary
Average Rate of Return
A financial ratio that calculates the return, or profit, of an investment over a certain period as a percentage of the initial cost of the investment.
Economic Conditions
The state of a country's economy at a given time, influenced by factors such as GDP, unemployment rates, and inflation.
Liquidity
A company’s ability to convert assets into cash.
- Understand the advantages of the average rate of return method in capital investment decision-making.
Verified Answer
SK
Sigrid KleiveMay 01, 2024
Final Answer :
C
Explanation :
The primary advantage of the average rate of return method is that it emphasizes the amount of income earned over the life of the proposal. This is beneficial because it helps managers to evaluate proposals in terms of their profitability and long-term viability. The other options are not relevant advantages of this method.
Learning Objectives
- Understand the advantages of the average rate of return method in capital investment decision-making.
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