Asked by Tiffany Smith on Jun 26, 2024
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The average accounting return:
A) Reflects the projected net effect of the cash flows from a project on the overall firm.
B) Is comparable to the return on assets and thus provides a similar measure of performance.
C) Reflects the anticipated net impact of a project on the shareholders of the firm.
D) Rule, when applied, guarantees that only projects that increase shareholder wealth will be accepted.
E) Ignores all income produced by a project after an arbitrarily assigned cutoff point.
Average Accounting Return
A method of measuring an investment's profitability by comparing its average net income to its average book value.
Return on Assets
A profitability ratio that measures how efficiently a company is using its assets to generate profit, calculated by dividing net income by total assets.
Shareholder Wealth
The total value of an investment in a company's stock, encompassing capital gains and dividends received over time.
- Utilize the average accounting return (AAR) concept to assess the significance it holds in project analysis.
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Learning Objectives
- Utilize the average accounting return (AAR) concept to assess the significance it holds in project analysis.
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