It is false that the accounting rate of return is based on cash flows, rather than net income, in its calculation.
What is accounting rate of return?
- The accounting rate of return (ARR) formula can be used to calculate a project's annual percentage rate of return.
- ARR is calculated as the average annual profit divided by the initial investment. The expected rate of return from each project is provided by ARR, which is commonly used when considering multiple projects.
- Payback period can be described as the number of years required to recover the original cash investment.
- It should be noted that this is the period of time at the end of which a machine, facility, as well as investment has produced sufficient net revenue to recover its investment costs, however projects with shorter payback periods can not be considered to have higher risk of being unprofitable investments .
- The statement that projects with shorter payback periods have higher risk of being unprofitable investments over the long run. group starts true or false true, unselected false, unselected is false.
- The accounting rate of return, also known as the return on investment, expresses the annual accounting profits generated by an investment as a percentage of the initial investment.
- Thus, the given statement is false.
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