Question

One method of investment decision making that is appealing to managers is the accounting rate of return (ARR). This method measures the average profit over a period as a percentage of the:

A) net cash flow.
B) average investment.
C) net cash inflow.
D) opportunity cost.

Answer 1

The correct answer is B) average investment.

The accounting rate of return (ARR) is a method of investment decision making that calculates the average profit over a period as a percentage of the average investment. It is a profitability measure used by managers to assess the potential return on an investment. By comparing the average profit to the average investment, the ARR helps evaluate the profitability of a project or investment opportunity.